Baldwin Bicycle Essay

1244 Words Jun 22nd, 2013 5 Pages
Case Summary:

Baldwin Bicycle Company has long history in manufacturing bicycles. Currently, they receive a Challenger deal from Hi-Valu. This proposal contains some special requirements such as to have larger inventory, sell at lower price, and have “Challenger” name on bicycle tires. Suzanne Leister, marketing vice president of Baldwin Bicycle Company, is considering whether or not to accept this proposal. The issues are listed below:

The Relevant Cost of Manufacturing a Challenger Bike | Cost analysis | The Relevant Cost of Working Capital Investments | Relevant cost analysis | The Relevant Erosion Charge | Profit analysis | The Incremental Return on Investment | Ratio analysis; incremental ROI | The Major Cash Flow
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This may result in additional interest expense. The current ratio measures a firm’s ability to repay its current liabilities. As the current ratio is 1.28, Baldwin has no difficulty to pay its current liability, but this number is not high enough to show a good short-term financial strength.

Return on Equity [255/3102] | 0.08 | Return on Sale [255/10,872] | 0.02 | Return on Assets [255/8092] | 0.03 | Liability to Equity Ratio [4,990,000/3,102,000] | 1.61 | Current ratio [(342+1,359+2,756)/(512+340+2,626)] | 1.28 |

7. Baldwin’s Strategic position at the end of 1982

Baldwin has long history in manufacturing bicycles. Until year 1982, Baldwin remains the medium position in the market. The bicycles they products have above average quality and price, but they are not the “top of the line” products. Currently, Baldwin is producing 10 model bicycles. It operates in all market segments. And there are no special products that can differentiate it from its competitors.

Baldwin can accept the Challenger deal as the incremental return on investment indicates a positive sign and Baldwin’s profit will increase. However, as the cash outflow is about $524,375, and its cash at the end of 1982 is $342,000, Baldwin may have liquidity difficulty to pay for this amount. Baldwin may go for raising more capital by issuing shares, or raising debt in order to continue this Challenger deal. Because Baldwin

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