Location: McKinney, TX
The attached spreadsheet model is for the 1 Dollar Jewelry Galore located in McKinney, TX, and currently listed for sale at $125,000. This model includes a pro forma income statement and balance sheet for the store, based on market assumptions in the area, and an analysis of the costs of capital and internal rate of return forecasted for the jewelry store. The model allows variables to be changed for all major inputs of the computations.
In the model with the input values chosen, the jewelry store would have a weighted average cost of capital equal 11.83%, with an internal rate of return equal to 12.29%. Realizing that the cost of capital may be adjusted by changing the debt and equity proportions, we have attempted to do so.
For this reason, we believe the listed sales price for the jewelry store is not a reasonable amount. The price of $125,000 would be a very good buy for an interested investor. We found that changing the current debt and equity of 26% and 74% respectively to 20% debt and 80% equity would bring down the weighted average cost of capital. 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 $500,000, which would lead to a slightly lower return and cost of capital for the jewelry store.