The total transaction as shown in the Excel would be $1240681 but and two percent of fees of $22500 would be included in the price as well. Therefore, by assuming this valuation, we could make predictions through the projected debt levels. The increment in debt level would not affect the Dollarama’s potential to pay back its interest from its earnings before tax in the upcoming years following the acquisition. Dollarama would be able to have its coverage ratio of around three times in 2005 and then declining slightly leaving no major effect on its ability of pay its interest. It would be favorable to review the debt position of Dollarama before it go for the leveraged buyout in the year 2005. Earnings before interest and tax and depreciation allowance as per CAPEX interest coverage ratio this is EBITDA/Interest is 8.5 times. This is quite comfortable zone as the debt is
concerned and the fact that the interest expense obligations could be easily met by Dollarama. The current debt ratio of 2005 is around 13.4%. On the other hand, the internal rate of return could possibly be negative in 2006, but it would increase in the next three years straight away. The reason for this could be that the company need to maintain its position soon after the Leveraged buyout and therefore not concentrating of operational activities. However, as Dollarama would then be able to look itself from the top, the internal rate of return tends to increase in 2007 and so on. Several costs would incurred and there would be more transactions to be taking place especially at the time of implementing of multiple strategies regarding the expansion of the business. New stores would require to be open that will need high initial investment with short payback period. For example, around two years. Uncertainties could also create problem for Bain as he has to attach multiple scenarios to the portfolio in order to make its investment successful. One critical factor would be the dependency of Dollarama on Chinese companies to run its stores successfully. There is no margin for Dollarama to be lazy as the debt burden would consequently push the company back.
Necessary Improvements Price strategy Dollarama has the tendency to introduce more new products at comparatively higher prices. Dollarama supplies allow the availability of good quality product. This would result in increase in the variety of goods sold by Dollarama. And therefore, resulting in more customers and thus more sources of revenue for Dollarama. This would also increase the attractive-ness of the store who those people who are up-to-date with the latest fashions of the country. The unique-ness of Dollarama allowed it be giant in market as it provides variety that no one else provide in the market that is office supplies, personal care products, and kitchen supplies in just a range of $1. These products are priced higher in other markets. Canadians are always keen to look for the good value in exchange and therefore, Dollarama provide its customers those products that no one else provide at such low prices. However, if Dollarama chooses to change its strategy by increasing the price, it would still be cheaper for people to buy from Dollarama.
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