Question

Assume you are looking to invest $10,000 and you have two friends each of which is offering to sell you a 25% stake in his/her business in exchange for your $10,000.

list at least 5 questions you would ask each of your two friends

for each question explain how the answer would help you make your investment decision

for each question explain what concerns you would have regarding the answers received.

Answer 1

The 5 questions which can be asked to the 2 particular friends in relation to the investment:

A) Will I be required to just invest or spend time developing the business after buying 25 percent stake?

This question will help in understanding whether I will be a sleeping partner or actually require to invest time along with money.

If the answer is affirmative, then apart from the investment scheduling will also be need to be done.

B) What kind of returns can I expect?

This question will help to determine which of the 2 investments is the more lucrative option.

The assumptions on which these returns are arrived at would be required to look into so as to enable that they are not realistic.

C)What is the market demand for the stock?

If you need liquidity, the tradeability of the stock in the market will help you recover your investment quicker.

To actually project whether the current level of market demand will be sustained.

D) Is there a demand for the respective product/ service?

This will lead to deeper understanding about the future prospects of the business.

What exactly it is that is keeping the product in demand and whether that will last is a concern.

E) Are there any complaints on file regarding the companies?

This will help you to understand the litigation aspect of the business.

The authenticity of the statement made by the friends shall be a concern and will need to be checked through through a background check.