MySurf Australia was incorporated by three friends who wanted to develop custom-made surfboards after they found it difficult to find unique surfboards for themselves. They found a manufacturer that could prepare each surfboard to specification by hiring local painters. They used a kickstarter website to raise money for the first 100 surfboards which was their breakeven point for their original investment. Now they were interested in establishing a brand via a sustainable marketing channel.

They requested proposals from five marketing companies and three submitted bids before the deadline. The specifications for the proposals were simple. They intended to sell each surfboard for $499 and their costs to manufacture and ship are $229. They wanted offers of guaranteed volume with explicit costs to provide the guaranteed amounts. The offers are as follows:

1. 100 minimum guaranteed orders per month with a cost of $100 per surfboard and any additional surfboards orders at the same cost of $100 per surfboard.
2. 50 minimum guaranteed orders per month with a cost of $50 per surfboard and then each additional order with a cost of $120 per surfboard.
3. 200 minimum guaranteed orders per month with a cost of $200 per surfboard. Any additional orders would be at the same cost.

One of the friends decides that they want to leave the business. There is no agreed shareholder agreement and there are no cash resources to pay out the friend who wants to leave so they will have to finance the friends departure with a bank loan or venture capital. The friend who wants to leave thinks she should be paid $680,000 for her share of the company. She is using a discount rate of 10% and making a few assumptions.

1. Do you agree with her assessment of the value of her third of the company? Why or why not? (3 marks)
2. How do you think they should finance the payout to the departing founder? (1 mark)