Components

Case Study
Teaching Note

An Unexpected Offer: Should Kristen Take It?

Oi Lin Cheung, Indiana University East
June 8, 2022
SKU:
BUS-008459
Topic: 
Accounting & Finance
Length: 
8 pages
Keywords: 
capital budgeting, discounted cash flow model, scenario analysis
Student Price: 
$4.00 (€3.8)
Average rating: 
0

Kristen earned a good reputation as a hairdresser in Cambridge City, Indiana, because of her high professionalism and dedication to her career. In 2015, a local barber offered to sell his shop to her at a much lower price than its market value. After visiting the shop with the barber’s sister, Kristen was very excited about this unexpected offer. “Gosh! This is exactly the place that will make my long-time dream come true. I really want to get it,” she said to the barber’s sister. At the same time, the huge discount concerned her. She remembered the saying, “If something is too good to be true, it probably is.” She wondered if she might have overlooked something important.

Learning Outcomes: 

In completing this assignment, students should be able to:

1. Identify the risk factors for a business venture

2. Estimate the cost of capital of a business venture

3. Evaluate a business venture using capital budgeting analysis

4. Complete a scenario analysis on a business venture