Reference no: EM132934386

The Japanese girl, Miho, in the earlier bagel case, estimates that she would need to invest about $50,000 to purchase the necessary supplies and equipment. She has $20,000 in savings, but still needs additional $30,000. One of her best friends, Amy, is willing to write her the check of $30,000, if she is willing to sell Amy an equity stake in the business. Miho really likes the idea of owning her bagel business outright. But, Miho is not sure what percentage of her total equity she should offer Amy in exchange for $30,000. She could also try to take loans from Banks.

Here are Miho's estimates about her bagel business for the first year:

1. an average of 6000 bagels per month at $1.65 each
2. The variable cost per bagel is $.45
3. The monthly fixed cost is $5,000
4. Tax @ 25%

So, the estimated annual net profits are $ 19,800. After adjustment, the annual net cash flow is $20,000.

Question 1: What you would do if you were Miho, sell or borrow?

Question 1: If Miho decides to sell, what percentage of her equity she should offer Amy in exchange for $30,000? A quantitative analysis in support of your answer is preferred. You may try the discounted future cash flows approach or an online calculator (see above) to calculate the business value first, then decide on the percentage.