Location: Knoxville, TN
Benefit Your Life is a small, family-owned gluten-free bakery located in Knoxville, Tennessee. It is a bakery which specializes in gluten-free baked goods as well as gluten-free ingredients. They do sales both in store and online. With an emerging market for gluten-free products, growth in the coming years is expected to continue at an increasing rate. An internet search for gluten-free bakeries in Tennessee will result in Benefit Your Life being the top result on the list.
This bakery is located in a suite, meaning the land and building would be fairly small and inexpensive. That as well as the $175,000 of goodwill constitute the bulk of the value of this company. A forecast of future sales were found by finding the population of both Knoxville and Tennessee as a whole. Knoxville would be for the in-store sales and Tennessee for the internet sales. Then we found the percent of the population which has a sensitivity to gluten to estimate the actual sales. The average price of online items and in store items was used to estimate the revenues.
For financing, we determined that a 5% mortgage rate and a 10% extra bank loan interest rate would be the best estimates for this type of business. We used a tax rate of 30% as well in our calculations. Using all of these numbers, we were able to find the WACC of 6.67% and an IRR of 7%.
After looking at the data, we have concluded that this business could be profitable if they begin to focus more time and efforts on the online sales portion of the business plan. Increased spending and efforts could be made into increasing the number of hits their site receives when a web search for gluten-free bakeries is done. We feel this would help because there is a larger market for internet sales and more potential for growth.