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21) Suppose you are caught by surprise when your great aunt contacts you to inform you that you've inherited an established surf shop in San
21) Suppose you are caught by surprise when your great aunt contacts you to inform you that you've inherited an established surf shop in San Diego, California from your great uncle (whom you've never met). Your great aunt informs you that your second cousin (who has worked in the surf shop a couple of years) is willing to purchase it from you at a price of S300,000. Use a simple discounted cash flow (DCF) analysis to value the surf shop. (Hint: Starting in year 1, project 5 years of firm free cash flows and calculate a terminal value with the growing perpetuity formula.) From a pure economic standpoint, are you willing to sell it for the offer price? Neil's Surf shop had firm-free cash flows of $30,000 last year (year 0), which is expected to grow at 5% a year for the next five years, after which will grow at 3% for eternity. The appropriate cost of equity is 15%. The surf shop has no debt or notable cash on hand. a. Yes, sell the surf shop for $300,000 b. No, don't sell the surf shop for $300,000 c. It doesn't matter
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