Assignment Case

In this assignment, you will have an opportunity to apply your understanding of ratio analysis to a small company seeking equity financing on Dragons' Den, a Canadian TV show.

The video presentation by Threeworks Snacks and Chips is available at http://www.cbc.ca/dragonsden/pitches/threeworks-snacks-and-chips

In the Dragon's Den episode featuring a pitch by Threeworks Snacks Chips, Kevin O'Leary decides not to invest in the company, while Jim Trevelyan offers an equity investment, but on different terms than those stipulated by the founder.

Required:

Write a 500 to 600 word memo in which you take a position supporting either Kevin or Jim's assessment of the company as an equity investment opportunity.

In your answer, ensure that you address the questions below.

The questions do not necessarily have to be addressed in the order presented below.Organize your memo in a logical order.

Do not simply submit your answers to the questions below.You are expected to incorporate your answers in sentences supporting your position.

The income statement that you must submit should be appended at the end of your memo and is not included in the maximum 600 word count.

Questions

Maximum marks

Group mark

How much does the founder think his business is worth?

How much equity investment is the founder asking for?

What does the founder intend to do with the investment?

How much are the company's revenues (sales)?

How much is the gross profit margin?

How much are marketing expenses (high end)?

Create an income statement in good form for the company based on the information given in the video and the following assumptions:

Founder takes an $80,000 salary

Other operating costs of $50,000

Assume a tax rate of 15%.

Assume no debt.

10

If net income is all cash, is Kevin's valuation of the company approximately accurate? Which ratio most closely reflects Kevin's valuation metric?Why is this ratio significant in Kevin's assessment?

3

How much of an investment does Jim agree to make?On what terms?What will Jim's return on equity be if his offer is accepted?How does Jim's RoE compare to the RoE based on the original terms?

3

What other qualitative information is presented in the video that is significant to your assessment?

3

Grammar, spelling and organization (introduction, body, conclusion); stays within maximum length of 500 - 600 words.

5

Persuasive argument that conveys a strong understanding of valuation metrics in this specific case, including comparison of valuation metrics.

5

Total

32