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Shreya Media & Entertainment Private Limited: Leveraging on the Leverage?

CASELET, FINANCIAL MANAGEMENT
ET Cases, 3 Pages

Case Preview

Shreya Media & Entertainment Private Limited: Leveraging on the Leverage?

 

On April 10th 2015, Shreya Media and Entertainment Private Limited (SMEPL), was awarded the best upcoming entertainment company in India. SMEPL’s Founder and CEO, Shreya Rao’s (Shreya) happiness knew no bounds when she received the award from one of the topmost business magazines in India. She felt as though all her dreams were turning into reality and all her hard work was paying off. Shreya always had been enterprising by nature. Wherever she was, she managed to keep her surroundings vibrant and lively. Interestingly, she was also a very responsible, hardworking person with independent thoughts. Her work exhibited her creativity and innovative thinking. Her family and friends recognized her abilities and were of opinion that she would be a success in creative ventures.

From her childhood, she was passionate of becoming an entrepreneur. During her graduation days Shreya realised that her thoughts were more inclined towards the Media & Entertainment (M&E) sector. Shreya decided to pursue a career in that industry. To be a success in the industry she charted her course of action and planned to acquire relevant qualifications. After completing her Post Graduation in Mass Media and Journalism from a reputed university in Delhi known for Humanities, she started her career in an M&E firm. Thanks to her invigorating passion and immense potential, she could quickly reach the position of Creative Head in a very short span of time. However, her aspiration was to set standards than to follow........

Teaching Note Preview

Shreya Media & Entertainment Private Limited: Leveraging on the Leverage?

 

Synopsis

The caselet should be used as a precursor to introducing capital structure theories and their implications. The presence of either Operating Leverage or Financial Leverage would impact the Combined Leverage and therefore the value of the firm. Ample attention should be given to the underlying logic. The protagonist of the caselet, Shreya Rao (Shreya) sought to launch one of the two television channels, Shreya News Media or Shreya Movies. She was in a dilemma whether to opt the debt, equity, preferred or hybrid way of financing.

Prerequisite Conceptual Understanding

  • • M. Y. Khan and P. K. Jain, “Operating, Financial and Combined Leverage”, Financial Management, 6th Edition, McGraw Hill Education (India), 2013

 

Case Positioning and Setting

This caselet can be used in either of the following courses in an MBA program:

  • • Financial Management – To understand the concept and implications of Operating Leverage, Financial Leverage and Combined Leverage on a firm’s value
  • • Corporate Finance – To understand how the presence of equity, debt and changes thereof would affect a firm’s capital structure

 

Assignment Questions

  • I. Determine the operating, financial and combined leverages of Shreya Media & Entertainment Private Limited (SMEPL) by 2016 without the new proposal.
  • II. Assuming that the company finances the projects using financial Plan C, determine the three leverages for the two channels individually. Which new channel would be financially more viable to launch?
  • III. .................

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Abstract


This caselet is meant to introduce the participants/students to three types of leverages - Operating Leverage, Financial Leverage and Combined Leverage - and their relationship with the value of the firm. Shreya Rao, the Founder-CEO of Shreya Media & Entertainment Private Limited (SMEPL), was planning to launch two new channels after her success with SMEPL. Then again, she was not sure whether she should go the debt way, the equity way or the balanced way. She was not certain how the firm's value pans out with any of the approaches.



Pedagogical Objectives

  • To understand the concepts of leverage and its significance in capital structure management
  • To examine the concepts of Operating leverage, Financial leverage and Combined leverage and their impact on the value of the firm
  • To analyse various financing options and arrive at the most preferred financial choice

Case Positioning and Setting

This caselet can be used in either of the following courses in an MBA program:

  • Financial Management – To understand the concept and implications of Operating Leverage, Financial Leverage and Combined Leverage on a firm’s value
  • Corporate Finance – To understand how the presence of equity, debt and changes thereof would affect a firm’s capital structure




This Case Pack Includes:
- Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
$3.37
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