Location: Salt Lake City, UT
The attached spreadsheet is a model for the Papa Murphy’s located in Salt Lake City, Utah. The current price of the restaurant is $125,000. The simulation model includes a pro forma income statement with a balance sheet for the store. The computations and amounts used in the pro forma come from market assumptions in and around the Salt Lake area and amounts based on average revenues and expenses in similar stores across the country. This model permits variables to be adjusted for all major inputs of the calculations and projects the future outcome in the company in multiple scenarios. We set up the model based on one small building on a small piece of land and then calculated steady growth as the years progress. We included in one scenario the option to expand and purchase another building to bring in new revenue.
The Salt Lake area is rapidly growing and many new businesses are thriving in this location. The calculation for the flow of revenue and expenses were based on the growing number of people that are consuming pizza. These numbers were based on many different statistical studies and we can assume that the figures will be reasonable if the current state of the economy and growth remain the same in the upper Utah area.
It is to be understood that our expenses could fluctuate greatly based on many matters that would be out of control of the buyer. There are many different expenses that are subject to change. The expenses and inventory are set by the franchise owners. Advertising, discounts, and other efforts of that nature are handled by the corporate managers, and it will be the job of those running the store to make sure they have satisfied customers
In the model with the input values chosen, the restaurant would have a weighted average cost of capital equal and internal rate of return of approximately 9.5%, but this was accomplished using an 80% debt proportion and a purchase price of the assets at $810,000. For this reason, we believe the listed sales price for the restaurant is not a reasonable amount. Also, recognizing this might be too much debt to begin the company but might be acceptable after the company was established, a more reasonable initial purchase price would be approximately $750,000, which would lead to an 8% return and cost of capital for the restaurant.
Based on our research and comparing the franchise to other similar businesses in the area, we have come up with a reasonable mortgage loan of $300,000 at 4.5% interest with any other loan at the same interest rate as well. In the model, the store would have a weighted average cost of capital and an internal rate or return of 6%. This was done with a 60% debt and a purchase price of assets at around $800,000. We are optimistic about the future for the buyers of Papa Murphy’s franchise in the Salt Lake Area.