Location: SE Idaho
We have developed a financial analysis with our own estimates specifically for Rocky Mountain DVD Rental. This is a small business of five DVD rental kiosks spread across southeast Idaho. The model shows our own forecasted estimations of the company’s income statement and balance sheet. It’s a working model, which means inputs can easily be changed and the model will adapt to those changes.
We also calculated the company’s estimated working average cost of capital and internal rate of return. Although our forecasted internal rate of return is greater than the cost of capital, which is a positive indicator, it will take several years to recover the startup costs. In addition, the nature of the industry is changing as more and more consumers turn to online streaming rather than renting physical DVDs.
Recognizing this risk, we do not believe that it would be a good idea to invest in this company. Along with the change in the industry mentioned above, the debt incurred in starting up the business seems unreasonable. Because of the volatility of the market, we believe that it would be a gamble and you would need to be prepared to take a hit in the first few years.