Baldwin Cycle Case

Baldwin rung Case 1. relevant Cost command Material$39. 8 Direct push back$19. 6 Variable Overhead(40% of $24. 5)$9. 8 measure Relevant Costs$69. 2 2. 2-months Raw material for 25,000 bikes $38. 9$165,833 WIP Inventory(1000 $69. 2)$69,200 perfect Goods(500 $69. 2)$34,600 A/R (30 long time) (25,000/12*92. 29)$192,270 Total Inventory Costs$461,904 Relevant summation Cost (5. 5 %) $25,405 Total Relevant Asset Cost$487,309 Interest 18%$87,716 Net Relevant Cost$399,593 charge Per Bicycle$15. 98 3. Cannibalization or eroding ordain arguably lead to diminution in Baldwins revenue.The lost gross revenue amount to $1. 3 Million. However, if the challenger bikes are not introduced fearing impacts of cannibalization or erosion, Baldwins rival can step in and rubric the benefits. Hi-Valu can turn to Baldwins challenger and that can have a bigger and long-term effect on an already declining bicycle market share for Baldwin. 4. It is elusive to predict return as performance of this aim opens up uncertainty in retaining existing customers. 5. The incumbent inventory dollar volume rate is 125 days for Baldwin and 46 days for account receivable turnover.However, Hi-Valu will pay Baldwin in 30 days resulting in early cash realization. The deal also positively impacts inventory turnover by limiting it to 120 days. indeed the deal has a favorable impact on Baldwin Cash flows. 6. Baldwins financial situation is as follows a. High debt to legality ratio from high amount of short debt b. High debt can lead to problems in raising additional financing c. From the current ratio(1. 28), it seems that Baldwin can pay of its liabilities d. With an 8. 2% ROE, Baldwin has a lower ROE than the industry second-rate 7.Baldwin isnt well poised at end of 1982 for the following reasons a. Bicycle nail down has flattened out resulting the plant run capacity to be underutilized at 75% b. Challenger deal provides added capacity for a guaranteed 3 years with additional circumstance on a yearly clutch basis c. Baldwin could lose gross sales of 3000 units and leaving of current dealers due to the deal found on long-term prospect of losing 3000 units of sales and current dealers, Baldwin should reject the deal unless nearly revisions to the deal are presented.