We are going to calculate the fair value of a private business called Sandy’s Bakery. Sandy owns Sandy’s Bakery and is looking to sell her business in the next few years. However, Sandy is unaware of how much her business is worth. Sandy wants to know how much her business is worth now to strategize how to negotiate the sale of her business.
Sandy’s Bakery brings in $500,000 per year in free cash flows. Sandy’s Bakery is also growing at a steady rate of 5% per year. We are going to stick with 3 years. Sandy’s Bakery is a private business with low liquidity; therefore, we are going to go with a target compounded rate of return of 15% per year.
How much is Sandy s Bakery worth?