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Chapter 2: FROM THE IDEA TO THE BUSINESS PLANMINI CASE: LEARNRITE.COM CORPORATIONLearnRite.com oers e-commerce service for chilren!s "e#tainment$ %ro#cts an services. &he'or e#tainment is #se to escri(e soft'are that com(ines "e#cational$ an "entertainment$com%onents. )al#a(le %ro#ct information an etaile eitorial comments are com(ine 'ith a 'ieselection of %ro#cts for %#rchase to hel% families ma*e their *is! e#tainment ecisions. + team ofleaing e#cators an ,o#rnalists %rovie eitorial comments on the %ro#cts sol ( the rm.LearnRite targets highl e#cate/ convenience oriente/ an val#e conscience families 'ith chilren#ner the age of 12/ estimate to (e a(o#t 35 %ercent of nternet #sers.

&he rm!s 'areho#se-istri(#tion moel res#lts in higher net margins/ as 'ell as greater selectionan convenience for c#stomers/ 'hen com%are to traitional retailers. ross %rot margins are

ex%ecte to average a(o#t 30 %ercent each ear.eca#se of relativel high mar*eting ex%enit#resaime at gaining mar*et share/ the rm is ex%ecte to s#er net losses for t'o ears. ar*eting another o%erating ex%enses are estimate to (e 3 million in 200 an 5 million in 2010/ res%ectivel.o'ever/ #ring the thir ear o%erating cash 7o' (rea*even sho#l (e reache. 8et %rot marginsare ex%ecte to average 10 %ercent %er ear (eginning in ear 3. nvestment in (ric*s an mortar islargel in the form of 'areho#se facilities an a com%#ter sstem to hanle orers an facilitate theistri(#tion of inventories. +fter consiering the investment in inventories/ the asset intensit ort#rnover is ex%ecte to average a(o#t t'o times %er ear.LearnRite estimates that vent#re investors sho#l earn a(o#t a 40 %ercent average ann#al com%o#nrate of ret#rn an sees an o%%ort#nit for a %ossi(le initial %#(lic oering in a(o#t six ears. fin#str consoliation occ#rs/ a merger might occ#r even sooner.

&he management team is heae ( 9ri*ant :a%oor 'ho serves as Presient of LearnRite.com an

'ho %ersonall controls a(o#t 35 %ercent of the o'nershi% of the rm. r. :a%oor has more thant'elve ears ex%erience in high-tech in#stries incl#ing %revio#s %ositions 'ith ;9 laris an axis.itch ?elman/ =irector of ar*eting/ 'as res%onsi(le for six ears for the mar*eting comm#nicationsf#nction an the nternet o%erations of a large soft'are com%an. anagement strives for contin#alim%rovement in ease of #ser interface/ %ersonali@e services/ an amo#nt of information s#%%lie toc#stomers.

&he total mar*et for chilren entertainment is estimate to (e 35 (illion ann#all. &os acco#nt fora(o#t 20 (illion in ann#al s%ening. 9#mmer cam%s are estimate to generate 6 (illion ann#all.

&his is follo'e ( *is! vieos an vieo games at 4 (illion each. :is! soft'are sales c#rrentl

generates a(o#t 1 (illion %er ear in reven#es an in#str sales are ex%ecte to gro' at a 30%ercent ann#al rate over the next several ears.

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Chapter 2 Case Stud S!"ut#!$s

Lear$R#te has %ade the &!""!'#$( )*e+ear re*e$ue pr!,e-t#!$s.

Aear 2011 2012 2013 2014 2015

Reven#es BC 1.0 .6 30.1 6D.E 121.4

A.

Note: Formula Sales Growth at 30% = Prior year sales x 1.3 (that is, 30% growth rate)

Aear 2011 2012 2013 2014 2015

Reven#es BC 1/000.0 1/300.0 1/60.0 2/1D.0 2/E56.1

B. Ca"-u"ate the ear+t!+ear a$$ua" sa"es (r!'th rates &!r Lear$R#te.

Note: Formula Sales Growth ate as % = !("urre#t $ear Sales &ast $ear Sales)'&ast $ear Sales x 100

Aear 2011 2012 2013 2014 2015

Reven#es BC 1.0 .6 30.1 6D.E 121.4

9ales ro'th Rate 8F+ E60G 214G 125G DG

C. Est#%ate Lear$R#tes e/pe-ted %ar0et shared #$ ea-h ear 1ased !$ the (#*e$ data.

Note: Formula or *ar+et Share as % = (&ear#ite Sales'#-ustry Sales)x100

Aear 2011 2012 2013 2014 2015

Hx%ecte ar*et 9hare BGC 0.1G 0.DG 1.EG 3.1G 4.3G

D. Est#%ate the )r%s $et #$-!%e "!ss3 #$ ea-h !& the )*e ears.

2011 2012 2013 2014 2015Reven#e B9alesC BC 1.0 .6 30.1 6D.E 121.4

ross Prot -aC 0.3 2. .0 20.3 36.4 Reven#e ti

ar*eting Hx%enses -(C 3.0 5.0 na na na

8et ncomeFBLossC -cC B2.DC B2.1C 3.0 6.D 12.1

8et Prot argin -C 8+ 8+ 10.0G 10.0G 10.0G

"ase #ormatio#: (a Gross Prot *argi#s = 30% ea/h year

( 011 *ar+eti#g = 23* 01 *ar+eti#g = 24*.

(/ 5he rm ha- a #et loss i# 011 a#- 01

(- Net 6rot margi#s i# 013014 are estimate- at 10.0%

Pr!,e-t #$dustr sa"es&!r -h#"dre$s s!&t'are thr!u(h 2456.

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Chapter 2 Case Stud S!"ut#!$s

E. Est#%ate the )r%s retur$ !$ assets 1e(#$$#$( 'he$ the $et #$-!%e #s e/pe-ted t! 1e p!s#t#*e.

Note: Formula or etur# o# 7ssets as % = (Net Prot'7ssets)8100

Aear 2011 2012 2013 2014 2015

Reven#es BC 1.00 .60 30.10 6D.E0 121.40

8et ncome 8egative 8egative 3.00 6.E0 12.10

?orecaste +ssets 0.50 4.E0 15.05 33.0 60.D0 reven#e i

Ret#rn on +ssets 8F+ 8F+ 1.G 20.1G 1.G net %rotF

"ase #ormatio#: 7sset 5ur#o9er = e9e#ue'7ssets or .0 or this /ase

(5hereore 5otal 7ssets = 40% o e9e#ues)

?.

Fa-t!r Cate(!r#es H#(h A*era(e L!' C!%%e$ts

I$dustr7Mar0et

ar*et si@e %otential ater than 100 m

)ent#re gro'th rate 30G

ar*et share Bear 3C 3.1

Hntr (arriers fe'Fnone

Pr#-#$(7Pr!)ta1#"#t

ross margins 30G+fter-tax margins 10G

+sset intensitFt#rnover 2

Ret#rn on assets 20G

F#$a$-#a"7Har*est

>ash 7o' (rea*even 3 ears

Rete of ret#rn 40G

P9 %otential 6 ears

?o#nerJs control 35G

Ma$a(e%e$t Tea%

Hx%erienceFex%ertise #str an mar*et

?#nctional areas all covere

?lexi(ilitFaa%ta(ilit K#ic*

Hntre%rene#rial foc#s f#ll team

&otal %oints ( ran*ing 1E 14 3

verall total %oints B&PC 35

+verage score 2.20

S-!re Lear$R#te8s *e$ture #$*est!r attra-t#*e$ess #$ ter%s !& the I$dustr7Mar0et Fa-t!r

Cate(!r us#$( the 9OS I$d#-at!r (u#de a$d -r#ter#a set !ut #$ F#(ures 2. a$d 2.;. I& !u1e"#e*e there are #$su

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Chapter 2: FROM THE IDEA TO THE BUSINESS PLANMINI CASE: LEARNRITE.COM CORPORATION. Pr!*#de a 1r#e& 'r#tte$ su%%ar #$d#-at#$( h!' !u &ee" a1!ut Lear$R#te.-!% as a1us#$ess !pp!rtu$#t.

?eel li*e Learnrite.com 'o#l (e a fairl safe investment #e to the ex%eriece of the managementteam an the large si@e of the in#str. t 'o#l not (e the homer#n investment that some ca%italistsare loo*ing for (#t it 'o#l (e a so#n investment 'ith a ecent ret#rn in a resona(le amo#nt oftime.