Location: Provo, UT
The attached spreadsheet model is for Hokulia Shaved Ice located in Provo, Utah and listed for sale at $185,000. This model includes a pro forma income statement and balance sheet for the restaurant, based on market assumptions in the area, and an analysis of the costs of capital and internal rate of return forecasted for the restaurant. 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 restaurant would have a weighted average cost of capital equal to 12.23%, and as forecasted, an internal rate of return equal to 12.23%. However, that rate of return is obtained by an initial investment of $300,260, which includes the assets and working capital of the company. For this reason, we believe the listed sales price for the restaurant is not a reasonable amount. This price allows for an acceptable rate of return at a reasonable debt and equity mix of 80% debt and 20% equity. Recognizing this might be too much debt to begin the company, but would be acceptable after the company was established, a more reasonable initial purchase price would be approximately $238,380.