Learnrite.Com Minicase

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LearnRite.com offers e-commerce service for children's edutainment products and services. The word edutainment is used to describe software that combines educational and entertainment components. Valuable product information and detailed editorial comments are combined with a wide selection of products for purchase to help families make their children's edutainment decisions. A team of leading educators and journalists provide editorial comments on the products sold by the firm. LearnRite targets highly educated, convenience-oriented, and value-conscious families with children under the age of twelve, estimated to be about 35 percent of Internet users. The firm's warehouse distribution model results in higher net margins, as well as greater selection and convenience for customers, when compared to traditional retailers. Gross profit margins are expected to average about 30 percent each year. Because of relatively high marketing expenditures aimed at gaining market share, the firm is expected to suffer net losses for two years. Marketing and other operating expenses are estimated to be $3 million in 2011 and $5 million in 2012. However, operating cash flow breakeven should be reached during the third year. Net profit margins are expected to average 10 percent per year beginning in Year 3. Investment in bricks and mortar is largely in the form of warehouse facilities and a computer system to handle orders and facilitate the distribution of inventories. After considering the investment in inventories, the asset intensity or turnover is expected to average about two times per year. LearnRite estimates that venture investors should earn about a 40 percent average annual compound rate of return and sees an opportunity for a possible IPO in about six years. If industry consolidation occurs, a merger might occur sooner. The management team is headed by Srikant Kapoor, who serves as president of LearnRite.com and controls about 35 percent of the ownership of the firm. Mr....
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