Case

BUSINESS VALUATION METHODS

(All Valuations MUST BE based on Historical Data)

I. Adjusted Book Value Take the Book Value of net worth -assets not acquired +liabilities not assumed +fair market value of assets acquired +any net worth adjustments =Adjusted Book Value

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II. Capitalized Adjusted Earnings First Step: Adjust Historical Earnings Seller’s Discretionary Cash Flow Net Profit +Officer’s salary +Discretionary expenses -New Owner salary Adjusted Profit Last Year 50.0 +70.0 +30.0 -60.0 90.0

Second Step: Get the adjusted profits for 5 years then do a Weighted Average of the Adjusting Earnings Year 95 96 97 98 99 Totals Average Earnings $ 50 $ 30 $ 70 $ 60 $ 90 Weight 1 2 3 4 5 15 $ Adjusted $ 50 $ 60 $ 210 $ 240 $ 450 $1,010 /15 67 (rounded)

Third Step: Calculate a Discount Rate Determine T-Bill Rate Determine Offset Risk Rate

√ √ Establish rate of return based on risk factors Establish rate of return based on general economy

5.0% 12.0%

Determine Offset Illiquidity Rate Total the Rates

3.0% 20.0%

Fourth Step: Take the weighted average of the adjusted earnings and divide by the discount rate. Example: $67/.20 = $335

___________________________________________________________________ III. Discounted Future Earnings

First Step: Adjust Historical Earnings Last Year 50.0 +70.0 +30.0 -60.0 90.0

Net Profit +Officer’s salary +Discretionary expenses -New Owner salary Adjusted Profit

Second Step: Get the adjusted profits for 5 years then do a Weighted Average of the Adjusting Earnings Year 95 96 97 98 99 Totals Average Earnings $ 50 $ 30 $ 70 $ 60 $ 90 Weight 1 2 3 4 5 15 $ Adjusted $ 50 $ 60 $ 210 $ 240 $ 450 $1,010 /15 67 (rounded)

Third Step: Determine the discount rate

Determine T-Bill Rate Determine Offset Risk Rate √ Establish rate of return based on risk factors √ Establish rate of return based on general economy Determine Offset Illiquidity Rate Total the Rates 7.0%...