| JAMES CONFECTIONERS |
| Financial Statements |
| INCOME STATEMENTS |
| | | | | 20XX | | % |
| Sales | | | | $3,897,564 | | 100% |
| COGS | | | | $2,625,340 | | 67% |
| GP | | | | $1,272,224 | | 33% |
| SGA Exp. | | | | $912,030 | | 23% |
| Deprec. | | | | $74,054 | | 2% |
| EBIT (Oper. Income) | | | | $837,976 | | 21% |
| Interest | | | | $119,658 | | 3% |
| Other Exp. | | | | $1,248 | | 0% |
| EBT | | | | $717,070 | | 18% |
| Income Taxes | | | | $551,836 | | 14% |
| Net Income | | | | $165,234 | | 4% |
| BALANCE SHEETS |
| | | | | 20XX |
| ASSETS |
| CURRENT ASSETS |
| Cash | | | | $161,254 | | 8% |
| Accounts Receivable | | | | $507,951 | | 25% |
| Inventories | | | | $568,421 | | 28% |
| Other Current | | | | $116,909 | | 6% |
| TOTAL CURRENT ASSETS | | | | $1,354,535 | | 67% |
| FIXED ASSETS |
| Gross PP&E |
| Accumulated Depreciation |
| Net PP&E | | | | $556,327 | | 28% |
| Other Fixed | | | | $104,815 | | 5% |
| TOTAL ASSETS | | | | $2,015,677 | | 100% |
| LIABILITIES & EQUITY |
| CURRENT LIABILITIES |
| Accounts Payable/Accruals | | | | $312,430 | | 16% |
| Short Term Debt | | | | $362,822 | | 18% |
| TOTAL CURRENT LIABILITIES | | | | $675,252 | | 34% |
| LONG TERM DEBT | | | | $564,390 | | 28% |
| STKHLDRS EQUITY |
| Common Stock (par+paid-in) | | | | $1,000 | | 0% |
| Retained Earnings | | | | $775,036 | | 38% |
| TOTAL LIABILITIES & EQUITY | | | | $2,015,678 | | 100.00% |
| Assumptions to use in the DE valuation analysis: |
| Assume that revenues will increase at 10 percent per year, the 5% per year thereafter. |
| Assume that COGS will hold constant at 64 of sales. |
| Assume that SG&A expense will rise 5 percent per year. |
| Assume that interest expense will be 5% of sales per year. |
| Assume that income tax will be 35% of EBT. |
| DISCOUNTED EARNINGS VALUATION - PROJECTED |
| | | Year 1 | Year 2 | Year 3 |
| Revenues |
| Costof Goods Sold |
| Gross Profit |
| S,G & A Exp. |
| Oper. Income |
| Interest |
| Earnings Before Tax |
| Income Tax |
| Net Income |
| DISCOUNT RATE CALCULATION | | | | | HISTORICAL ROI |
| Long-term Treasury Rate | | | 3% |
| Equity Risk Premium | | | 4% | | S&P 500-7% |
| Firm Size Premium | | | 9% | | Russell 2000-16% |
| Industry Risk Premium | | | 2% | | Wiltshire 5000-18% |
| Specific Co. Risk Premium | | | 2% |
| INDICATED DISCOUNT RATE | | | 20% |
| | | Proj Yr 1 | Proj Yr 2 | Proj Yr 3 |
| EBIT |
| Discount Factor |
| DCF |
| Residual (PV .329) |
| INDICATED VALUE |
| EARNINGS CAPITALIZATION VALUATION |
| Assumptions to use in the CE valuation analysis: |
| Assume the cap rate is equal to the discount rate from Table minus |
| a growth rate in earnings of 5%. |
| Oper. Income |
| Capitalization Rate |
| INDICATED VALUE |
| Assumptions to use in the EE valuation analysis: |
| Assume that current assets are as shown |
| Assume that fixed assets are as shown |
| Assume that the income statement is as shown. |
| Use a 10% return for CA and FA |
| Assume excess earnings are capitalized at 15% |
| Historical EBIT |
| Return On CA |
| Return of FA |
| Excess Earnings |
| INDICATED VALUE |
| | | | | Wt. | Wtd. Value |
| VALUE RECONCILIATION |
| DPE VALUATION |
| EARNINGS CAPITALIZATION |
| EXCESS EARNINGS |
| FMV CONCLUSION |