Prepare a case study analysis of "Case 16: Too Hot to Handle" located in the Cases in Finance text by DeMello. Be sure to address the following in your analysis:
a. Briefly summarize the case.
b. Formulate answers to questions 1, 2, 3, 4, 5, 6, and 7 at the conclusion of the case. Be sure to include your calculations where appropriate.
Attached is the Case Study that needs to be completed.
Over the past three years, Salon and Spa, founded by Patsy, has enjoyed a great growth with a current revenue growth rate at 10%. Like other promising business, Salon and Spa soon faces competitions from new salon and nail spa in the area. In order to enhance the competitiveness, Patsy decided to install tanning equipment to distinguish her salon from the others and increase revenues at the same time. Two equipments are under consideration: tanning dome, which is more expensive but with higher quality, and tanning bed, which represents a cheaper alternative. Various financial matrices are calculated to make a sound and informed investment decision for Patsy.
Please see the attached Excel for detailed calculations. Formulas and steps to calculate each cell are included for your reference. Here, the question asks for "operating cash flow" and therefore we need to consider the revenues from the salon services as well. That makes this question very tedious since we need to first construct the income statement under all different scenarios. From the net income, we could then use the indirect method of cash flow statement to come up with ...
'Too Hot to Handle' Case study is summarized.