Evaluating Value
Lesson summary:
The business was valued at $1,500, with an initial investment of $500 for a third of the company. In year five, earnings exceeded $1,500, resulting in over a 100% return. The company spent $2,100 in capital building lemonade stands and earned $2,336, a 155% annual growth rate. Profitability increased from 1.3% to 28.6%. The equity investor earned a 100% return, while the lender received a 10% return. Equity investors take more risk and have the potential for higher returns. Lenders are entitled to the first value of liquidated assets.