FI499 Unit 2 Capstone Case Selection Proposal Example

One Decision, Three Choices, Two Cases Set Aside: A Unit 2 Capstone Case Selection Proposal for a Swim School Acquisition

[Student Name]

Purdue University Global

FI499: Bachelor's Capstone in Finance

Unit 2 Case Selection Proposal

[Instructor Name]

[Date]

Tidewell, Paddlemark, the rejected cases and every figure are composite; the books and article cited are real.

The Decision Question

Should Tidewell Swim Schools, a composite fourteen-site chain in central Ohio, buy Paddlemark Swim Academy's six schools for $21.0 million, build two new schools for about $11.0 million, or do neither?

Why This Case

The case puts the whole course to work on one decision. Valuation, financing, risk and sensitivity all bear on it, and its size suits a one-term project: two small companies with simple statements, no complex securities and no international operations. It also has a clear hinge, the retention of Paddlemark's enrolled families after a rebrand, which gives later units something specific to test.

The Data Inventory

What the case file supplies.

Three years of audited statements for both companies: results, financial position and cash flows. Monthly enrollment counts for Paddlemark's tuition plans over the same three years. Site-level revenue and lesson volumes for all twenty schools. Paddlemark's two building leases, both of which expire at the end of the third year after closing. A term-loan quote from Tidewell's bank: $14.0 million at a floating rate currently 8.25 percent, with a covenant limiting debt to 3.5 times EBITDA. A contractor's estimate of $11.0 million for two new schools.

What the case file lacks, and the workaround for each.

Paddlemark's payroll records by instructor are missing, so labor cost will be analyzed only as a share of revenue. There is no record of enrollment after any earlier rebrand at Paddlemark; I will look for comparable evidence in the industry and treat the first-year enrollment assumption as uncertain. Paddlemark's lease renewal terms are not stated; I will treat renewal as a risk and test it in Unit 7. Tidewell's cost of capital is not given; I will build it from the loan quote and a stated equity return and record it as an assumption.

The proposal commits to one decision measured one way, value to Tidewell's owners against the price, so every later unit has a single number to move and a single test to pass.

The Evaluation Criterion

Each alternative will be judged by its value to Tidewell's owners against its cost, measured by discounted cash flow. For the acquisition, the test is whether Paddlemark's value to Tidewell, including any savings from combining, exceeds $21.0 million. For building, it is whether the two new schools have a positive net present value. Doing neither is the baseline. Discounted cash flow suits the decision because both alternatives are investments in future cash flows, and it is the method most corporate finance practitioners report using for such choices (Graham & Harvey, 2001).

What the Analysis Will Not Cover

Three questions sit outside the decision and will be left out. Tidewell's marketing strategy for the combined chain matters, but it does not change whether Paddlemark is worth $21.0 million today. The personal plans of Paddlemark's founder, who will retire after the sale, are relevant only through a short consulting agreement the case file already prices. And the choice of a new brand name for the combined business is a marketing decision that the valuation can treat as settled, since the conversion cost is already estimated. Keeping these out of scope protects the term's time for the analysis that the decision actually needs.

How the Alternatives Will Be Compared

The three alternatives are not equally sized, so the comparison will use net present value rather than a return percentage. Buying Paddlemark commits $21.0 million; building commits about $11.0 million; doing neither commits nothing. A return percentage could favor a smaller project that creates less value in dollars. Net present value answers the question owners care about, how much wealth each choice adds, and handles the difference in size directly.

Cases Considered and Rejected

A composite hospital system's outpatient expansion. Its revenue depends on payer contracts and reimbursement rules the case file describes only in summary. One person could not reconstruct the cash flows with confidence in a term.

A public airline's fleet decision. Its statements are long and complex, and the decision depends on fuel prices, labor contracts and route networks that would each need their own study. The analysis would become a survey rather than a decision.

Both are worth studying; neither can be analyzed honestly by one person in ten weeks. The swim school case, by contrast, fits in a single workbook that a reader can audit line by line.

Plan for the Term

Unit 3 will set the assumptions. Unit 4 will test them against the statements. Unit 5 will value Paddlemark. Units 7 and 8 will test the risks and sensitivities, and Units 9 and 10 will deliver the recommendation. Any change to an assumption after Unit 3 will be recorded in a change log, so the final recommendation can be traced back to its sources (Koller et al., 2020; Brealey et al., 2020).

References

Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance (13th ed.). McGraw-Hill Education.

Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7

Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and managing the value of companies (7th ed.). Wiley.