Location: Lake Mary, FL
Pieces Furniture is a small family-owned store that sells furniture out of a showroom. It is located in Lake Mary, Florida. This model includes a pro forma income statement and balance sheet with expected returns for their debt and investors. There is also a theoretical financial statement showing how the company would sell off their assets and pay their debts if they were to file for bankruptcy. Also calculated is the internal rate of return for the company’s mortgage loan and extra bank loan.
The model provided allows variables to be changed for all major inputs. In the model with the input values chosen, Pieces Furniture would have a weighted average cost of capital at approximately 9% with an internal rate of return of approximately 9%. By making adjustments to the debt and equity proportions of the company, we were able to make the internal rate of return and weighted average cost of capital equal.
We believe that the current asking price of $29,000 is a reasonable price. It started out around $60,000 and throughout the semester they have lowered their price. We feel that at the current price, the new owner would be getting a good deal. We believe that the company would be a profitable investment.