What is it Worth—If Anything?

• In Event: Revenue Recognition, Valuation, and Corporate Social Responsibility

Abstract

The case highlights Jason & Cheryl Vinyard’s dilemma in regard to the purchase of a gourmet cupcake franchise: they must decide if purchasing the Gigi Cupcakes franchise is a good investment now and into the future. Neither of them had ever owned or operated a retail business nor a restaurant/cupcake franchise. Jason has an MBA but he had never used it to develop a financial analysis like the one he needed to do to determine profitability and a possible price to pay for the franchise. However, he did work with customer contracts in the pharmaceutical industry. In his current job he had to determine profitability and pricing to make both the company and the potential or current customer satisfied. He believed he had successfully negotiated many profitable deals for his current employer as evidenced by being top salesman for six of the past ten years. There were several problems that had to be solved before they could move forward with the purchase of the franchise. First, the financials did not reflect the verbal information provided by the current owner. Second, Cheryl was going to quit her job as a teacher and work full-time in the business while Jason continued working for his current employer. Cheryl had never worked in that type environment. Third, they could not determine how the current owner arrived at his asking price for the franchise. The question they pondered every day was: is it a good investment for us; what is the real value of the business; how do we determine an offering price? Time was running out for them to decide. The case provides information to examine several issues associated with the decision.

Authors

• Aundrea Kay Guess, Samford University

• Jason Vinyard, Practitioner