The Paradiso House

Case Preview
BU387 Summer 2023 Group Case 1
Instructor: Xiaoran (Jason) Jia
Expected Case Format
- from syllabus
• Main content
• No more than 3 pages
• Times New Roman 12 font
• Double space
• Normal margin (1’’ margin)
• Appendices
• No more than 3 pages
• With at least two visualizations
Expected Case Content
- The steps are consistent with the Case Primer in the Textbook
Step 1: A brief introduction of the context, for example:
• What is the business background and reporting
environment?
• What is your role and your objective?

Step 2: Based on the cash flows (you need to prepare

the cash flow statements) over the 5 years, how does
the operating/investing/financing cash flows change?
What does the pattern tell you?
Step 3: With the three statements (income statement,
Statement of financial positions, and cash flow
statement), calculate some ratios of different categories
(i.e., liquidity, activity, solvency, profitability).

Analyze these ratios over the years.

(Note: your analyses should support your
recommendations)
 Step 4: Valuation of common shares (I’ll give you some more specific guidelines).
You can use (complete) the following model:
• I have completed a column as an example for you.

 Earnings are calculated based on: Mean of Median of Most recent

  5 years 5 years year
Current earnings 278,830
Expected earnings after adding a second restaurant (× 2) 557,661
Earnings multiple (4 to 6 times, you can test each of them and form
different scenarios – hence 9 scenarios, or do this table 3 times with 4
each earnings multiple)
Business value (expected earnings × earnings multiple) 2,230,643
Common shares outstanding 20,000
Projected value per share 111.53

Current book value per share

(For each column, only show the most recent year’s value)
50.14
(this is calculated as the book value of equity/common shares
outstanding)

Investment (under equity financing option, what is the amount of

investment?) 1,000,000
Net earnings (what is the incremental earnings associated with this
278,830
investment)
Annual return on equity 27.88%
More about common shares value projection:
Note that it is possible to identify some potential normalizing adjustments
(i.e., this is simply to remove the effects of one-time (usual) gains/losses from
earnings), however, the case facts are not specific enough at this stage to
warrant their inclusion. However, you are encouraged to discuss normalizing
adjustments from a general perspective.
Hence, for the purpose of this case, using the reported earnings suffices for
common shares valuation projections.

Step 5: Comparison of returns

Debt investment return is known from the case. Hence, at this stage, you can
write a comparison of rate of returns on equity versus debt investment.

Step 6: Recommendation
Write a clear recommendation to Laura about your recommended course of
action.

(Don’t forget about visualizations – use them wherever you see fit)