Kim runs a business called Daisy Cakes where she makes cakes with her grandmother using 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 them. Kim's sales in three months (October, November, and December) were $27,000; However, she is looking for an investor to invest $50,000 in his company in exchange for 25% of the equity. Barbara, an investor, agrees to invest $50,000 in her company on one condition: for every cake Kim sells, she must send Barbara one dollar, so that when Kim sells 50,000 cakes, Barbara gets the money back from her.

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

2) Prepare a balance after the operation. What are assets, liabilities and equity? Separate the Equity section on Kim and Barbara's equity in the company. For the valuation of the liability (what DaisyCakes has to pay Barbara) use your knowledge of the time value of money. Assume a discount rate of 10%. Hint: Round the number of pies sold per year to the nearest whole hundred.

3) "Calculate guesses" the company's current annual sales and net income. Prepare a budgeted Income Statement. We really don't know how the $18 you quote includes things like electricity, depreciation, or a salary for Kim, herself, and her mother. So for now, let's stick with the information we got from above.

4) Based on this balance sheet and income statement, calculate the profit margin, ROI, and residual income (assume 10%) for the overall company after Barbara's investment.

5) Based on your previous findings, what is the company's real valuation? In other words, what are Net Assets?