The attached spreadsheet model is for Central Florida Golf Carts LLC, located in central Florida. We forecasted the income statement and balance sheet for the next ten years of the company based on our research. We used market rates to compute the company’s revenues and costs. In the spreadsheet, we summarized two forecasts. One forecast was based on a terrible market and caused a bankruptcy. The second forecast shows favorable market conditions in which there is a steady rate of growth. Each forecast shows the rate of return on investment based on favorable or unfavorable market conditions.
Under the favorable forecast, we computed the following rate of return. The weighted average cost of capital is equal to 14.43%. The internal rate of return for the company is 14.1%. We computed the weighted average cost of capital using the BETA, Treasury bill rates, and the Standard and Poor rate of return. By using these numbers and the proportions of the outstanding mortgage loan, we calculated the WACC. Under the unfavorable forecast, we computed the internal rate of return for the secured asset holder at -12.66% and for the unsecured asset holder a rate of return of -60.40%. However, this is only in the case of a bankruptcy. The favorable forecast results have a higher probability than the bankruptcy results.