Chapter 1 — Ravi Names His Price
Ravi wants Rs.25 lakh for a 40% stake.
Ravi believes his cafe is worth Rs.62.5 lakh and is willing to sell 40% for Rs.25 lakh. Arjun cannot accept or reject a number he cannot evaluate. He decides to build a valuation from first principles.
Chapter 2 — Time Value of Money
Why Rs.1 lakh tomorrow is worth less than Rs.1 lakh today.
If Ravi promises Rs.1 lakh next year, that promise is worth less than Rs.1 lakh today — because today's money can be invested and grown. The further away a cash flow, the more it must be discounted.
The discount rate is the cost of capital — the return Arjun could earn elsewhere at the same risk level. For a small private business, he uses 14%.
Chapter 3 — The Valuation Result
Three scenarios. Three very different numbers.
Arjun discounts future cash flows at 14% across three scenarios. Bear case — slow growth: Rs.35 lakh. Base case — moderate growth: Rs.48 lakh. Bull case — second location opens: Rs.68 lakh. A 40% stake at these valuations would be worth Rs.14L, Rs.19.2L, and Rs.27.2L respectively. Ravi wants Rs.25 lakh for that 40%.
Ravi is asking Rs.25 lakh for a 40% stake — implying the entire business is worth Rs.62.5 lakh. In Arjun's base case the business is worth Rs.48L, which means 40% of that is Rs.19.2 lakh. Ravi is asking Rs.25 lakh for the same 40% — a significant premium. Before walking away, Arjun decides to cross-check with one more method.
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