1. Two pet rescue shelters in Charleston jointly own the ReTail Store which is staffed by volunteers and sells donated furniture to raise money for the two shelters. The first owner proposed the buy out the second owner to attain 100% ownership of the store. In deciding whether to sell, the second shelter had to determine the value of their 50% ownership of the store. There were conflicting views. As a small retail store, some thought the cap rate should be 20% which produced a relatively low value. On the other hand, the store had been in operation for 5 years and produced very stable profits; thus it should have a much lower cap rate and higher value. Further complicating matters was a provision in the by-laws that once a formal offer was made, that second shelter had to either accept the offer to sell or buy out the first shelter at that offer price. How would you approach this valuation?

2. The valuation of a mature publicly traded firm is easy - - just look up the stock price and multiply by the shares outstanding. For a start-up, there is no public price. You must calculate the present value of the anticipated net cash flows, discounted at the appropriate risk-adjusted discount rate. But that is when the difficulty sets in. What is the appropriate risk-adjusted discount rate?? Also, determining the anticipated cash flows is more difficult because there is only limited history to provide a guide.