Assume that today is January 1, 2021. Assume that you are a management consultant. One of your clients comes to you for advice. Your client has the opportunity to buy a small business, Finance Experts Fine Food Store. The purchase must be made today. What do you think the business is worth given the projected financial statements? The lease on the building that houses the business will expire on December 31, 2023 at 11:59 p.m. It cannot be renewed. In other words, the business only has a life of 3 years. All assets will be sold on December 31, 2023. Assume that investments of like risk are giving a 10% return every year.

SEE BALANCE SHEET BELOW:

Finance Experts Fine Food Store Balance Sheet as of December 31

ASSETS 2020 2021 2022 2023 ______________________________________________________________________________

Current Assets Cash $ 50 150 250 0 Accounts Receivable 100 100 100 0 Inventory 150 250 250 0 --------------------------------------------------------------- TOTAL 300 500 600 0

Fixed Assets Net Plant and Equipment 2000 1900 1800 0 --------------------------------------------------------------

TOTAL ASSETS 2300 2400 2400 0

LIABILITIES AND EQUITY ______________________________________________________________________________

Current Liabilities Accounts payable 100 100 100 0 Notes payable 200 200 200 0 ------------------------------------------------------------- Total 300 300 300 0

Long-term debt 0 0 0 0

Stockholders' Equity Common Stock and Paid-in Surplus 100 100 100 0 Retained Earnings 1900 2000 2000 0 --------------------------------------------------------------- Total Stockholders Eq 2000 2100 2100 0

TOTAL LIABILITIES & EQ 2300 2400 2400 0

Finance Experts Fine Food Store INCOME STATEMENT as of December 31

2021 2022 2023

Net Sales 1,000 2,000 3,000 Cost-of-goods sold 600 1200 1500 Depreciation 100 100 100

------ ------ ----- Earnings before interest and taxes 300 700 1400

Interest 0 0 0 ------ ------ ------- Taxable Income 300 700 1400

Taxes 50 200 300 --------- ------- ------

Net Income 250 500 1100

Retained Earnings 100 0 0

Dividends 150 500 3100