(6 pages of text)
The president of a new venture that sells a high-quality men's made-to-measure clothing line is considering opening the company’s first retail store in the downtown core of major city. He wants to grow the business to become the next big luxury fashion brand, and he believes that opening a flagship retail store is a logical step, but he first wants to analyze its financial feasibility and the investments required to pursue this strategy. The analysis includes a differential analysis, ROI and payback calculations.
This case best serves as an introduction to future-oriented decision-making. Students will be introduced to the differential cash flow model when evaluating this opportunity. More specifically, teaching objectives include:
- To understand when a differential analysis is an appropriate tool for making business decisions.
- To practise identifying the specific costs for a differential analysis for a business decision.
- To learn the difference between variable and fixed costs and how these costs behave relative to volume.
- To learn to identify recurring cash flows and one-time cash flows, and how these flows are treated in a differential cost analysis.
- To make a decision based on the analysis.
Canada, Small, 2012
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