Question

In: Finance

Read the scenario in the teaching notes, share with us your opinion about? • • What...

Read the scenario in the teaching notes, share with us your opinion about? • • What you would do if you were Miho? • If Miho decides to sell, what percentage of her equity she should offer Amy in exchange for $30,000? Reference: An Example of Bagel Shop A Japanese girl, Miho, would like to open a bagel shop in Tokyo selling the genuine American bagel. Based on her research and observations on other bagel stores in Tokyo, she decides to sell plain bagels at $1.65. She also estimates the variable cost per bagel is $.45, and the total fixed cost is $4800 per month. Now she wants to know what is the break-even point for her bagel business based on these assumptions. More Reference material: To Sell or Not to Sell The Japanese girl, Miho, in the earlier bagel case, estimates that she would need to invest about $50,000 to purchase the necessary supplies and equipment. She has $20,000 in savings, but still needs additional $30,000. One of her best friends, Amy, is willing to write her the check of $30,000, if she is willing to sell Amy an equity stake in the business. Miho really likes the idea of owning her bagel business outright. But, Miho is not sure what percentage of her total equity she should offer Amy in exchange for $30,000. Here are Miho’s estimates about her bagel business for the first year: ? an average of 6000 bagels per month at $1.65 each ? The variable cost per bagel is $.45 ? The monthly fixed cost is $5,000 ? Tax @ 25% So, the estimated annual net profits are $ 19,800. After adjustment, the annual net cash flow is $20,000. Optional activity #1: Read the above scenario, think about: • What you would do if you were Miho, sell or borrow? • If Miho decides to sell, what percentage of her equity she should offer Amy in exchange for $30,000? You may try the discounted future cash flows approach to calculate the business value first, then decide on the percentage. Whether or not to take debt vs. equity is dependent upon many factors, including whether funding sources are available, the interest rate, the duration of the loan, the amount of the money you need, the percentage of ownership in exchange of the amount of investment, potential of the business (operation years and growth), etc. Thus, to make a sound decision, you probably need to do some research yourselves on 9 1. What is the typical interest rate for commercial loans?

Solutions

Expert Solution

Details Available
Shop Bagel
Selling Price 1.65
Variable Cost 0.45
Fixed Cost Per month              4,800
Investment Required            50,000
Savings Available            20,000
Addl. Requirement            30,000
Business Forecast Available to determine % equity
1st Year
6000 Bagels / Month                1.65
Monthly Fixed Cost              5,000
Tax 25%
Estimated Annual net profit            19,800
Annual Net cash flow            20,000
Ans 1 Breakeven Point
Total Contribution                1.20 (Sell Price - Variable Cost)
No of Units to be sold per month to recover the Fixed Cost              4,000 (Fixed cost / Contribution)
Ans 2 Discounted Cash Flow Approach
Initial Cash Outflow          -50,000
Cash Inflow Per month              1,650
Period                    12
Interest 6% http://www.c-loans.com/borrowers-investors/commercial-mortgage-rates-compared-to-home-loan-rates
Net Present Value (1 year)            13,833
Payback Period               -3.61 It will take Approximately 3 years and 8 Months to recover the initial cost
Monthly Cash Inflow
Sales (1.65 * 6000)              9,900 (Assumed the sales is received and incurred same Month)
Variable Cost (0.45 * 6000)              2,700 (Assumed the cost is paid and incurred same Month)
Gross Profit              7,200
Less : Fixed Cost              5,000
EBIT / Month              2,200
Annual EBIT            26,400 (EBIT * 12)
Tax @ 25%              6,600
Net Profit            19,800
Cash flow per month              1,650 (Assuming all Cost and revenue are paid in same month)
Depending on various factors, she should offer a 49% equity to her friend considering that the investment shall be rwpaid within a period of 3 years and 8 months
Also The control should be in the hands of Miho

Related Solutions

Please share your opinion about the US stock market , including: the performance of the stock...
Please share your opinion about the US stock market , including: the performance of the stock market in the past several months, the factors that influence stock market, relationship of stock market and companies' financial performance, and your forecast of the stock market for the next 2 months.
Please share your opinion about the US stock market , including: the performance of the stock...
Please share your opinion about the US stock market , including: the performance of the stock market in the past several weeks, the factors that influence stock market, relationship of stock market and companies' financial performance, and your forecast of the stock market for the next 2 months.
Please share with us the best and worst company names in your opinion. Explain your selections...
Please share with us the best and worst company names in your opinion. Explain your selections and the criteria you used to make your determinations. Your examples must be existing businesses. THE EFFECTS AND RELEVANCE OF NAMES OF THE BUSINESS ARE TO BE MENTIONED. HOW APPROPRIATE THEY ARE AND HOW THEY HAVE ADVANTAGED THE ORGANISATION.
What is your opinion about this article   "US May Reimpose Tariffs On Canadian Aluminum"  by Anna Swanson, The...
What is your opinion about this article   "US May Reimpose Tariffs On Canadian Aluminum"  by Anna Swanson, The New York Times?? https://www.pressreader.com/usa/the-capital/20200624/281560883056002
What did the totals of your responses tell you about your beliefs about teaching?
Our beliefs influence and ultimately shape the philosophies that we carry into our classrooms. To assess your developing beliefs about education, respond to the following statements, and then answer the questions that follow. Use this scale in making your responses:What did the totals of your responses tell you about your beliefs about teaching?Did the tallies confirm what you believe your philosophy of education is at this point in your studies, or were they inconsistent with what you previously thought your...
what is your opinion about demand and economy supply?
what is your opinion about demand and economy supply?
What is your opinion of the US health care system? What is effective? What is ineffective?...
What is your opinion of the US health care system? What is effective? What is ineffective? What are the strengths and weaknesses of the system? In your opinion, what should be the "end goal" of the US health care system? Are we, as a nation, achieving this goal? ( 350 words)
(1) Are share buybacks ethical, in your opinion?
(1) Are share buybacks ethical, in your opinion?
What is your opinion on the US government's response to the global pandemic that we know...
What is your opinion on the US government's response to the global pandemic that we know call Covid-19?
From the six categories that you read about this week, share with your colleagues a case...
From the six categories that you read about this week, share with your colleagues a case that presented to you in your practicum (or a personal experience). Describe how the skin disorder developed and what treatment was prescribed. Explain the cause of the skin disorder (bacterial, fungal, etc.), but focus on the treatment. Include pharmacodynamics, pharmacokinetics, and pharmacotherapeutics of the medication prescribed (you may have to use an additional resource like Lexicomp, UpToDate, or Epocrates). Don’t forget monitoring and patient...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT