You have saved enough money to pay for your college tuition for the next three y
ID: 2487094 • Letter: Y
Question
You have saved enough money to pay for your college tuition for the next three years when a high-school friend comes to you with a deal. He is an artist who has spent most of the past two years drawing on the walls of old buildings. The buildings are about to be demolished, and your friend thinks you should buy the walls before the buildings are demolished and open a gallery featuring his work. Of course, you are levelheaded and would normally say no. Recently, however, your friend has been featured on several local radio and television shows and is talking to some national networks about doing a feature on a well-known news show. To set up the gallery would take all of your savings, but your friend thinks that you will be able to sell his artwork for ten times the cost of your investment.
1...What information about the business do you need before deciding to invest your savings?
2...What kind of profit split would you suggest to your friend?
Explanation / Answer
1...What information about the business do you need before deciding to invest your savings?
The following information has to analyzed before making the investment
The identification of companies are in the business of setting up art gallery
The information of on the business model
Analyze their consolidated financial statements and disclosures of similar companies
The analysis of fixed cost , variable cost , return on investment , selling price
The brand value of friend work and likely revenues generated
As this one time investment calculate the NPV , as the building once converted in gallery can be sold to the investor
2...What kind of profit split would you suggest to your friend?
The profits split will depend upon following consideration
The calculation of NPV of the project
Your rate of return expected depending upon the industry standard
After calculation NPV on your discount factor , split it 50 :50 as this business is on valuation and creativity of your friends art work as this is a onetime product cannot be massed produced
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