Location: Hillsborough County, FL
The attached spreadsheet model is of Sun City Golf & Cars Inc, a golf cart dealership located in Hillsborough County, Florida. It is listed for sale for $165,000. The projected model includes financial statements, options to expand, and cases of bankruptcy. Based on current markets and three months of research, we have come to a conclusion about the health of the company and its going concern for the subsequent eleven years . The purpose of this analysis is to disclose pertinent information for potential investors.
The first tab informs investors of the going concern principle or the life of the business and the return for investors. The return for investors relies on the WACC, the weighted average cost of capital and the IRR, the internal rate of return. WACC is a number derived from the market of golf cart sales and re-levering the volatility (Beta) according to the Sun City Golf & Car’s projected numbers for long-term liabilities and retained earnings. With help from the information in the income statement and balance sheet, the free cash flows are constructed, which are then used to calculate the IRR, or the return for investors. In our model, it shows IRR and WACC within 1%. However, to produce a WACC and IRR equal to each other, a large extra bank loan would need to be acquired and the company would be left with negative retained earnings each year.
The second tab explores an optimistic outlook for an option to add a testing track for $50,000. This testing track allows Sun City Golf & Cars to enter in the private sector of golf carts, providing golf carts to wealthy homeowners, other commercial businesses, and enter the market in other parts of the country. The option produces an IRR of 8.57%, increasing it by 2% from the calculations on the first tab. Sun City Golf & Cars contains several other options to expand their business for an increased profit and an increased return.
The third tab explores the option of bankruptcy based on the forecasted numbers for the first five years. The purpose is to reveal the return for creditors in the event of bankruptcy. It is useful information since the economy is slowly moving out of the recent economic slump. Projected IRR for the mortgage loan is 4% and for the extra bank loan, it is -28%. The model does not effectively produce a bankruptcy, but it is important for creditors and investors to understand the potential of negative events associated with Sun City Golf & Cars.
The last tab shows the time value of money associated with the mortgage. Overall, we recommend investing in Sun City Golf & Cars. With the potential for large growth in unexplored options, we feel that the benefit is greater than the cost to invest.