Location: San Francisco, CA
Cottage Coastal is a business that specializes in high quality home décor located in the north San Francisco Bay area. Cottage Coastal was started in 2005 as a way for customers to purchase unique coastal furniture. The company focuses on being environmentally safe and on products that leave a small economic footprint.
This model includes a forecasted income statement and balance sheet with assumptions made about the local area. With these assumptions, we have analyzed the profitability of the company and made recommendations of changes that could or should be made. The model is such that inputs can be changed to see the effect it has on the companies weighted average cost of capital and internal rate of return.
Given our assumptions, the weighted average cost of capital for Cottage Coastal was 7.72%. The internal rate of return was equal to 5%. Because our rate of return is lower than our cost of capital, Cottage Coastal should not get their asking price of $250,000. If this company were purchased, you would not make a return on your investment. Depending on the investor’s desired outcome, they would either accept this asking price or negotiate a lower one in order to receive a higher return.