Baldwin Cycle Case

Baldwin rhythm Case 1. Relevant Cost Direct poppycock$39. 8 Direct Labor$19. 6 versatile Overhead(40% of $24. 5)$9. 8 Total Relevant be$69. 2 2. 2-months Raw material for 25,000 bikes $38. 9$165,833 WIP enrolment(1000 $69. 2)$69,200 sinless Goods(500 $69. 2)$34,600 A/R (30 eld) (25,000/12*92. 29)$192,270 Total Inventory Costs$461,904 Relevant Asset Cost (5. 5 %) $25,405 Total Relevant Asset Cost$487,309 occupy 18%$87,716 Net Relevant Cost$399,593 determine Per cps$15. 98 3. Cannibalization or erosion bequeath arguably evanesce to reduction in Baldwins revenue.The lost sales amount to $1. 3 Million. However, if the rivalry bikes are not introduced fearing intrusions of raisenibalization or erosion, Baldwins rival can step in and claim the benefits. Hi-Valu can turn to Baldwins competitor and that can acquire a larger and long-term effect on an already declining bicycle market share for Baldwin. 4. It is intemperate to predict return as implementation of this spea k opens up uncertainty in retaining existing customers. 5. The circulating(prenominal) inventory turnover rate is 125 days for Baldwin and 46 days for account receivable turnover.However, Hi-Valu testament pay Baldwin in 30 days resulting in early cash realization. The deal also positively impacts inventory turnover by limiting it to one hundred twenty days. Thus the deal has a favorable impact on Baldwin Cash flows. 6. Baldwins financial mail is as follows a. High debt to equity ratio from laid-back amount of short-term debt b. High debt can lead to problems in raising additional financing c. From the new ratio(1. 28), it seems that Baldwin can pay of its liabilities d. With an 8. 2% ROE, Baldwin has a pass up ROE than the industry average 7.Baldwin isnt head poised at end of 1982 for the following reasons a. Bicycle boom has flattened out resulting the plant run capacity to be underutilized at 75% b. competitor deal provides added capacity for a guaranteed 3 long time wi th additional scope on a every year contact basis c. Baldwin could lose sales of 3000 units and outlet of current dealers due to the deal Based on long-term prospect of losing 3000 units of sales and current dealers, Baldwin should revoke the deal unless some revisions to the deal are presented.