Kim has a company called Daisy Cakes where she makes cakes with her grandmother with fresh ingredients. Kim invested $93,000 in the company. Kim sells the cakes for $44.50 on her website and it takes $18 to make the cakes. Kim's sales in three months (October, November, and December) was $27,000, however, she is seeking for an investor to invest $50,000 in her company in exchange for 25% equity. Barbara, an investor, agrees to invest $50,000 in her company under one condition: For every cake Kim sells she must mail Barbara a dollar, so by the time Kim sells 50,000 cakes Barbara has her money back.

1) Based on the deal, what is the value/price of the company?

2) Prepare a balance sheet after the deal. What are the assets, the liabilities and the Equity? Separate the Equity section into Kims and Barbaras equity in the company. For the valuation of the liability (what DaisyCakes has to pay to Barbara) use your knowledge about time value of money. Assume a 10% discount rate. Hint: Round up the numbers of cakes sold per year to the next full 100s.

3) Guesstimate the companys current annual sales, and net income. Prepare a budgeted Income Statement. We do not really know how if the $18 she quotes include things like the electricity, depreciation or a salary to Kim, herself, and her mother. So, for now, lets go with the information we got from above.

4) Based on this Balance Sheet and Income Statement, calculate the Profit Margin and RoI and Residual Income (assume 10%) for the overall company after Barbaras investment.

5) Based on your findings above, what is the actual valuation of the company? In other words, what are the Net Assets?