# finance assignment

1

ARGANICA COMPANY

2

Arganica Company

Name

Tutor

College

Course

Date

Investment Analysis

Dominic Kostelac had been working for a real estate company until the house bubble messed him up. With nothing much to do in town, Kostelac decided to move upcountry to start farming using the few resources that he had remained with after declaring himself bankrupt. Upon reaching his farm, Kostelac observed that there was much potential of developing the farm businesswise and has come up with his self managed Arganica Company. Even though Arganica has got potential, Kostelac lacks financial resources’ to run the farm. With his current financial standpoint, very few firms are willing to give him any financial assistance, a factor that disturbs him so much. As the American Venture capital, we have decided to offer Kostelac financial assistance that will be aimed at helping him attain his dreams regarding the operations of Arganica Company. This paper outlines what we the American venture capital are planning to offer to Kostelac in bid to improve Arganica`s financial standpoint and business operations.

The outcome for Dominique`s Business Idea

Dominic Kostelac seems to have a brilliant business idea that has not yet materialized. Even though the business idea seems to be brilliant, financial constraint seems to be the deterring factor that blurs the reality of the business. Considering that the business has started from scratch and its growing quite well, it is more likely that if finances are provided and its operations take more of professionalism than idealism, the business may grow to be successful. The major similarity between Kostelac`s business idea and mine is the challenge on raising finance. Even though the ideas seem to be realistic, it is difficult to find a willing investor or any financial institution that is willing to provide funds for a business whose owner is bankrupt. With financial assistance, it becomes possible for any business to undertake its business operations.

Arganica`s worth

In order to calculate the net worth of Arganica, we need to establish the

NPV

for the company. To calculate the NPV we have to determine the cash inflows and the initial investment of the company.

We expect 1

0

00 members to be added every year

Cash flow for next ten years = \$

3

0*

10

00= \$

30000

each year

Initial Investment =

 Initial Investment Laptops (2)-\$ 7 5 Furniture-\$25 Total investment= 100

We assume that the WACC for the company is 10%

NPV calculation

-100

1

30000

30000

30000

30000

30000

30000

30000

30000

30000

 Year cash flows Discount factor Discounted cash flow 0 -100 1 30000 0. 9 1 27272.72727 2 0. 8 3 2 4 793.38843 3 0.75 22539.44403 4 0. 6 8 20490.40366 5 0.62 18627.63969 6 0.56 16934.2179 7 0.51 15394.74355 8 0.47 13995.22141 9 0.42 12722.92855 10 0.39 11566.29868 NPV 184237.0132

However, we still need to incorporate the liabilities that were carried from the former business of Kostelac since it is also part of the business.

Bank of America -22, 605

Legal fees- 169, 000

Credit card-11, 239

A repossessed boat-100

Total 302, 944

This means that the total for the liabilities is \$302, 944.

To determine the worth of the company, we determine the difference between the liabilities and the NPV. This comes to (184,237-302, 944) = -118,707

To arrive at this amount, we have assumed that the cash outflows are negligible in terms of salaries and wage for the workers. Additionally, we also assume that the cash inflows are the only membership fee and the profits obtained from the sales are used to pay for the maintenance and for the workers of the firm.

The amount to be invested

To determine the amount that is required for the company we will use the net worth of the company in trying to evaluate on how much the company requires in terms of financial assistance. With a net worth of -118,707, it means that the company needs to first settle its stabilize its operations to 0 and this will require \$118,707. In estimation, the company will also require additional \$50, 000 for Kostelac to implement his plans for the business. This brings the finances that will be offered to the company to be \$168, 707. In return, our company a 50% stake in the ownership of Arganica. Even though the company has a negative net worth, the internal rate of return is actually high. This is due to the 10, 000+ customers for the business with the membership fee of \$250 annually. This means that the company has projected earnings of \$25, 000, 000 per annum less the amount the amount that would be realized from the sales of woods and other commodities from the firm. This means that within a period of one year, it possible for Kostelac to clear his debt and diversify the operations on his firm (Branch, 2007).

Kostelac as the CEO

If Kostelac agrees to partner with us on the business operations on his farm, it is advisable that Kostelac becomes the CEO of the company other than hiring a professional CEO. This is due to the fact that Kostelac is the original founder and the one whose ideas will materialize after provision funds. Giving Kostelac the chance to be the CEO will be of great advantage since he is the one who came up with the idea and knows exactly what he is intending to do rather than hiring a new CEO.

References

Branch, B., & Ray, H. (2007). Bankruptcy investing: How to profit from distressed companies. Washington, D.C: Beard Books.

1

ARGANICA COMPANY
2

Arganica Company

Name

Tutor

College

Course

Date

Dominic Kostelac had been working for a real estate company until the house bubble messed him up. With nothing much to do in town, Kostelac decided to move upcountry to start farming using the few resources that he had remained with after declaring himself bankrupt. Upon reaching his farm, Kostelac observed that there was much potential of developing the farm businesswise and has come up with his self managed Arganica Company. Even though Arganica has got potential, Kostelac lacks financial resources’ to run the farm. With his current financial standpoint, very few firms are willing to give him any financial assistance, a factor that disturbs him so much. As the American Venture capital, we have decided to offer Kostelac financial assistance that will be aimed at helping him attain his dreams regarding the operations of Arganica Company. This paper outlines what we the American venture capital are planning to offer to Kostelac in bid to improve Arganica`s financial standpoint and business operations.

The outcome for Dominique`s Business Idea

Dominic Kostelac seems to have a brilliant business idea that has not yet materialized. Even though the business idea seems to be brilliant, financial constraint seems to be the deterring factor that blurs the reality of the business. Considering that the business has started from scratch and its growing quite well, it is more likely that if finances are provided and its operations take more of professionalism than idealism, the business may grow to be successful. The major similarity between Kostelac`s business idea and mine is the challenge on raising finance. Even though the ideas seem to be realistic, it is difficult to find a willing investor or any financial institution that is willing to provide funds for a business whose owner is bankrupt. With financial assistance, it becomes possible for any business to undertake its business operations.

Arganica`s worth

In order to calculate the net worth of Arganica, we need to establish the NPV for the company. To calculate the NPV we have to determine the cash inflows and the initial investment of the company.

 Cash inflows Initial Investment Membership fee- \$30* 100 00=300, 000 Laptops (2)-\$75 Furniture-\$25 Total 300, 000 100

NPV= (300, 000-100) = 299,900

However, we still need to incorporate the liabilities that were carried from the former business of Kostelac since it is also part of the business.

Bank of America -22, 605

Legal fees- 169, 000

Credit card-11, 239

A repossessed boat-100

Total 302, 944

This means that the total for the liabilities is \$302, 944.

To determine the worth of the company, we determine the difference between the liabilities and the NPV. This comes to (299,900-302, 944) = -13, 044

To arrive at this amount, we have assumed that the cash outflows are negligible in terms of salaries and wage for the workers. Additionally, we also assume that the cash inflows are the only membership fee and the profits obtained from the sales are used to pay for the maintenance and for the workers of the firm.

The amount to be invested

To determine the amount that is required for the company we will use the net worth of the company in trying to evaluate on how much the company requires in terms of financial assistance. With a net worth of -13, 044, it means that the company needs to first settle its stabilize its operations to 0 and this will require \$13, 044. In estimation, the company will also require additional \$50, 000 for Kostelac to implement his plans for the business. This brings the finances that will be offered to the company to be \$63, 044. In return, our company a 50% stake in the ownership of Arganica. Even though the company has a negative net worth, the internal rate of return is actually high. This is due to the 10, 000+ customers for the business with the membership fee of \$250 annually. This means that the company has projected earnings of \$25, 000, 000 per annum less the amount the amount that would be realized from the sales of woods and other commodities from the firm. This means that within a period of one year, it possible for Kostelac to clear his debt and diversify the operations on his firm (Branch, 2007).

Kostelac as the CEO

If Kostelac agrees to partner with us on the business operations on his farm, it is advisable that Kostelac becomes the CEO of the company other than hiring a professional CEO. This is due to the fact that Kostelac is the original founder and the one whose ideas will materialize after provision funds. Giving Kostelac the chance to be the CEO will be of great advantage since he is the one who came up with the idea and knows exactly what he is intending to do rather than hiring a new CEO.

References

Branch, B., & Ray, H. (2007). Bankruptcy investing: How to profit from distressed companies. Washington, D.C: Beard Books.