This analysis evaluates a funeral home for sale in a mountain valley of Colorado. The current listing price is $285,000. The attached spreadsheet shows a pro forma income statement and balance sheet for the funeral home based on market assumptions in the area and an analysis of costs of capital and internal rate of return forecasted for the funeral home. Main inputs can be adjusted as needed.
The funeral home was valued to be $215,035 and the land to be at approximately $20,000. With these amounts, a weighted average was found to be only 2.32% and an internal rate of return at 8.44%. However, according to the website, the asking price is $285,000 (which, I believe, includes the land). This adjustment brings the cost of capital to 2.56% and the internal rate of return to 5.11% leaving a positive return. The debt percentage we calculated was 64% and the equity 34%, which seems manageable for opening a business.
An internal rate of return at 5.11% with only a 2.56% of cost of capital may be enough incentive to make the purchase and begin business. If the building was priced at $310,000 and the land at $20,000, this would bring the NPV to zero. According to our calculations, we feel making the purchase at the current sale price could be very profitable.