Question

Sales 3 million dollars per year Cost of goods 1.7 million dollars per year Cash Expenses 725 thousand dollars per year Depreciation Expense 125 thousand dollars per year Cash on the balance sheet 150 thousand dollars Receivables on the balance sheet 75 thousand dollars Inventory on the balance sheet 300 thousand dollars Fixed asset net of depreciation on the balance sheet 450 thousand dollars Total Current Liabilities on the balance sheet 175 thousand dollars Total Long Term Debt on the balance sheet 600 thousand dollars Your required return if you invest in this business is 20 percent. This is the figure you will use to calculate the present value of EBITDA. You will also buy the receivables and inventory from the current owner. But you will not buy the cash on the balance sheet. You will assume all current liabilities and all total long-term debt of the business. Assignment: 1. Create an income statement (down to EBIT) and a balance sheet using the data provided above. The balance sheet should include total assets and total liabilities and equity. Use the format for these statements that is shown in the example within the week four online lecture A Simple Way to Value a Business. (15 points) 2. Calculate EBITDA for this business. (5 points) 3. Calculate the business value for this business using the formula in the week four online lecture A Simple Way to Value a Business. There is an example in this lecture that should be carefully studied. (10 points) Clearly identify each problem with the number 1, 2, or 3 associated with it. This makes it possible to grade your problems. Please submit your work as an excel file.

Answer 1

Fig.in mlns
1.Income statement			Balance sheet
Sales	3		Cash	0.15	Current liabilities	0.175
COGS	1.7		Receivables	0.075	LT Debt	0.6
Gross margin	1.3		Inventory	0.3	Equity(Bal.)	0.2
Cash expenses	0.725		Fixed assets ,net	0.45
Depn.	0.125		Total assets	0.975		0.975
EBIT	0.45
2. EBITDA=EBIT+Depn.
ie.0.45+0.125=
0.575
Millions
ie. $ 575000
Value of firm= PV of future EBITDAs discounted at the reqd. rate of return, 20%--ie.EBITDA/Reqd. return
ie.0.575/20%=
2.875
millions
Balance sheet(after buying)
Cash(Bal.fig.)	2.825		Current liabilities	0.175
Receivables	0.075		LT Debt	0.6
Inventory	0.3		Equity(Bal.)	2.875
Fixed assets ,net	0.45
Total assets	3.65			3.65