Location: Las Vegas, NV
The attached spreadsheet model is for the Blue Ribbon Trophies located in Las Vegas, NV, and currently listed for sale at $90,000. This model includes a pro forma income statement and balance sheet for the trophy shop, based on market assumptions in the area, and an analysis of the costs of capital and internal rate of return forecasted for the store. The model allows variables to be changed for all major inputs of the computations, and includes citations for assumed values in the models.
In the model with the input values chosen, the shop would have a weighted average cost of capital equal 7.27%, calculated from a retail store beta, and internal rate of return equal to 9.04%. However, that rate of return is obtained by an initial investment of $150,000, which includes the assets and working capital of the company. Because the initial investment is far more than the original list price, we recommend that this selling price is too low. This price allows for an acceptable rate of return at a reasonable debt and equity mix of 30% debt and 70% equity. Because our projected net assets (total assets minus liabilities) are significantly higher than the selling price, we recommend that the seller raise their selling price to get more money from the business. They should ask for the net assets of $150,000 plus the net present value of cash flows of $17,000. We also recommend using this as a template and adding your own numbers to figure out a fair price for the company.