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XoomPark is a start-up company that provides customers with the ability to reserve parking spaces online for multiple venues in multiple cities across the country. In order for us to make a 7-year forecast for the company, we had to make several assumptions from the limited information available regarding their financial position. Our first assumption was based off the current availability of parking spaces on their website. We used this information to obtain an average number of spaces sold per year, and from that we were able to obtain an annual revenue amount. Since this is an internet company, we assumed a limited amount of overhead and assets. We used an average ticket cost of $20 growing annually at 5% (to account for inflation, etc). We assumed that the company used a 15% mark-up on the ticket cost to arrive at a ticket price for the company. We based many of the expenses on a percent of sales. We used this information to create and forecast an income statement and a balance sheet for the company. We also calculated the weighted average cost of capital (WACC), which involved unlevering and relevering beta.
After obtaining a WACC for the company, we were able to calculate the free cash flows for the company, and in the last year we assumed liquidation. This allowed us to calculate the net present value (NPV) of the free cash flows and made it possible to determine the company’s forecasted internal rate of return. The internal rate of return (IRR) seems high; however, when the nature of the business is taken into consideration, the IRR seems more reasonable, especially when one considers the likelihood that an internet company can become a realization. The company appears to show minimal risk, favorable returns and appears to be a strong candidate for investment.