Location: Ferndale, MI
Pet-n-Paw is a pet store based out of Ferndale, Michigan. The business sells a variety of inventory for all kinds of pets. Pet-n-Paw also provides services for pets and their owners. These services include: dog walking, training, and animal sitting. Pet-n-Paw is selling for the price of $149,000. Our model for this business has made various assumptions about the population of Ferndale, its competitors, percent of households with pets, average cost of pet per year, etc.
Pet-n-Paw does have a high gross income, upwards of $500,000, but a relatively low cash flow of about $23,000. Pet-n-Paw has a median net income of $9,575. This fact, and the one previously mentioned, suggests that Pet-n-Paw has a relatively high income tax rate, depreciation expense, and mortgage interest expense. The current WACC is 5.20% and has an internal rate of return of 8% in a normal market. The internal rate of return is 3% higher than the WACC because of the low cost to start the business and a decent cash flow.
We believe that with a net present value of free cash flows of $134,343 an internal rate of return of 8%, and with a debt ratio of 50%, that Pet-n-Paw is currently selling for a reasonable price.