Location: Moab, UT
Tex’s Riverways is a company that is listed for sale at $1,500,000. Attached is a model that includes an income statement and balance sheet for the company based on the market assumptions through research and knowledge of the industry. The model can be changed to reflect actual numbers and will compute the desired outputs if inputted correctly. This is simply a model and should be altered to reflect the actual information of the company for a more complete result.
Given our estimates and assumptions, Tex’s Riverways would have a weighted average cost of capital equal to 6.5%, and as forecasted, an internal rate of return equal to 6.55%. However, that rate of return is obtained by an initial investment of $1,406,677, which includes the assets and working capital of the company. For this reason, we believe the listed sales price for the company is not a reasonable amount. This price allows for an acceptable rate of return at a reasonable debt and equity mix of 80% debt and 20% equity. Recognizing this might be too much debt to begin the company but would be acceptable after the company was established, a more reasonable initial purchase price would be approximately $1,116,613.