Business Plan Risk/Discount Evaluation Interstate

Business Plan Risk/Discount Evaluation Interstate Travel Center Of the three business plans evaluated in this exercise, two are startups, and for that reason alone carry greater risk than the established enterprise. Of these two startups, the greatest risk comes with the novelty of the startup in regards to its owners/operators, as well as the degree of control the company can exert over market share.

Both of these reasons make the Interstate Travel Center truck stop in Dallas the riskiest investment of the three; though still a sound business plan with perceivable benefits and even a likely profitability, there are too many uncertainties in the plan that should increase the discount rate of the company.

The husband-wife management and ownership teams is one cause for concern, in regards to their experience and capabilities -- if not run effectively, the potentials that exist in the proposed situation will fail to materialize no matter how great the demand. Market share presents another area of concern for this business proposal; though the business plan suggests the potential for growth in the trucking industry in and around (and through) Dallas, changes to highway projects or shipping patterns could drastically affect the enterprise's profitability.

As a retail operation, the truck stop would not be able to pursue customers in other locations, meaning they have relatively little control very market share in the outlying regions of the Dallas metropolitan area. The fact that the owners are borrowing ninety percent of their projected start-up costs in a traditional loan rather than sharing ownership or seeking other investments also puts the business a greater risk for catastrophic loss and failure, especially when construction has not even begun.

Acme Consulting The second of the two startups is also a somewhat risky venture, though less so than the Interstate Travel Center proposal.

There are several key reasons that Acme Consulting remains a medium-risk proposal despite its clear advantages over the truck stop: it is still a startup, with no proven track record as a company even though its owners/officers have all worked in the chosen field of operation previously; competition for market share is fiercer, which is a result of the erstwhile advantage of having more control over market share and client-seeking; and lastly, it relies on convincing companies to outsource tasks that would normally be done in house, with a very different effect on the client company's balance sheets.

That is, Acme must convince its clients that it can do some things better than the client company themselves, which is not an issue the truck stop has to contend with. In essence, the likelihood of profitability is a longer-term gamble with Acme Consulting than it would be with the Interstate Travel Center, but the upfront risk is lessened by the experience, lower startup costs, and more diverse sources of startup funding that Acme Consulting plans to employ.

These are the reasons that the risks associated with this firm are medium instead of high, and the discount rate should reflect this median level of risk. The rate of payoff in the discount rate should also, of course, reflect the amount of time projected to be necessary for true profitability to be achieved (as explicitly outlined in the business plan), as well as the increased level of competition that the company will face in the Silicon Valley (or would have faced in the mid to late nineties).

Silvera and Sons The most sound investment opportunity provided in these three business plans -- and thus what should be the lowest discount rate to be offered -- comes form the Silvera and Sons business plan. This company has already been in operation under current ownership and management for six years, and has been in operation for a total of more than twenty, with the current owner (Silvera Sr. ) acting as manager for the majority of that time.

The profitability of the company in its current state of operation is well established, and the balance sheets provided in the business plan reflect the company's financial.