Putting a price on a city food cart
Question
How would you work out what a hot dog stand in a large city is worth?
Short answer
Value the cash it generates. Estimate daily sales (footfall times conversion times average ticket), subtract food, permit or licence, labour and upkeep costs to get annual free cash flow, then discount it over the stand's expected life or apply a small-business multiple. Adjust for the owner's own labour, the transferability of the location or permit, and risk, and cross-check against resale value of the equipment.
Adapted from Crack, Heard on the Street, Q5.4.3, p.52; question and answer rewritten by SelfMadeQuant.com.
See the hint and the full worked solution in the question bank (free account).
Open the worked solution