The attached spreadsheet model is for GiftBasket.com located in New Jersey and currently listed for sale at $6.5 million. This model includes a pro forma income statement and balance sheet for the company, based on market assumptions in the area, and an analysis of the costs of capital and internal rate of return forecasted for the company. 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 business would have a weighted average cost of capital equal 9.01%, and also have a rate of return equal to 9.07%. We were able to accomplish this by implementing 80% debt and 20% equity.
For this reason, we believe the listed sales price for the business is a reasonable amount. We would actually make the recommendation of a slight adjustment of $50,000 so that the cost of capital could be attained with 80% debt and 20% equity. Even though this might be a good deal of debt to start the company, it should be acceptable once the company is established. We would recommend slightly adjusting the price to $6.55 million dollars to get a return rate of 9.07%.