Background:
Ken Romaniszyn, the owner of Lady M Confections is faced with two difficult decisions. The first is
whether to open a new boutique in the new World Trade Center, a location with great potential for sales,
but also with substantially larger capital costs and rent costs. The second decision is whether to accept an
offer of $10 million and a line of credit from a Chinese investor, in exchange for an equity stake in the
company and exclusive franchising rights to China. The decision of whether to open the new boutique is
also dependent on the decision of whether to accept the Chinese investors offer. If Romaniszyn chooses
to open the new boutique, the funding must be secured, either from the investor or from another source.
This case explores the decision-making process that small, private businesses must undertake when
considering an expansion and when selling equity to outside investors. This case represents an
opportunity to learn how to evaluate a private business.
Address the following questions:
1. How many cakes would Lady M need to sell in a year in order to break-even? Is it feasible?
2. Assuming sales in year one are break-even, how quickly would sales need to grow after the first
year to pay the start-up costs within 5 years? Is this feasible?
3. What is your recommendation about opening the new location?
4. What is Lady Ms enterprise value? How much of an equity stake should they be giving up to the
Chinese investors?
5. What do you think of Romaniszyns and Toms baselines assumptions?
6. Do you think they should take the Chinese investors offer? Motivate your answer.
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