Quick and dirty techniques indeed
I can show a small example for those who are bored enough to follow: I recently bought a Loose Cigarette vending machine
The market value is about 4000 - 3500; I bought it for 1300. To do so I took a R1000 loan from a friend who was with me at the time. The machine was moved from a bar to a retail store.
Now the operation as a whole earns R25 Sales a day.
The Variable Cost = 50% of Sales.
Now if we imagine that this Vending machine is a business. It has the same characteristics of Income, Expenses, Debt, Equity, Asset Value.
The EXPECTED income generated is R25 * 365 = 9125 PA.
Expenses = 0.5 * 9125 = 4562 PA.
Initial Investment = 1300
Let's assume that the alternative investment I could have made is invest the 1300 at 8% in a government bond.
The Net Present Value (The present value of future cash flows) is R2924.53 (this is crunched mathematically as [4562/(1.08)] - 1300
This means that 2924.53 is how much I can sell this operation as a going concern (a business).
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