Question

Option #1: Case: Mayfield Real Estate Development Valuation

Mayfield Real Estate Development is a company that owns and operates a number of real estate ventures. The company also engages in real estate acquisitions and sales of properties, some of which are properties the company no longer wishes to operate. Similar real estate firms earn a 15-percent rate of return. Mayfield reported the following earnings over the last five years:

Year	Operating Income	Gain(Loss) on Sale of Assets	Net Income
1	$1,000,000	$700,000	$1,700,000
2	$1,500,000	$600,000	$2,100,000
3	$1,100,000	$400,000	$1,500,000
4	$1,600,000	(200,000)	$1,400,000
5	$1,800,000	(400,000)	$1,400,000

• Prepare a business valuation report for Mayfield Real Estate Development using the income statement method.
• Provide analysis for giving equal weights to the five years of earning data versus giving greater weight to the more recent earning periods (where five is more recent).
• Given the type of industry Mayfield Real Estate Development is in, do you believe 5 years of financial information is sufficient to provide an accurate picture?

Answer 1

Here it is mentioned the case of  Mayfield Real Estate Development is a company that owns and operates a number of real estate ventures. The company also engages in real estate acquisitions and sales of properties,Mayfield reported the following earnings over the last five years:

Year	Operating Income	Gain(Loss) on Sale of Assets	Net Income
1	$1,000,000	$700,000	$1,700,000
2	$1,500,000	$600,000	$2,100,000
3	$1,100,000	$400,000	$1,500,000
4	$1,600,000	(200,000)	$1,400,000
5	$1,800,000	(400,000)	$1,400,000

From the above table shows that, Mayfield Real Estate Development a lower rate of Net income in the 4th and 5 th year with regards the previous year's Net income. This happened with the loss on sale of assets in 4th and 5th Year.Year 1 shows a remarkable gain on sale of Assets i.e.,$700,000 and that year the operating income shows $1,000,000 and net income showed $1,700,000.Higher gain in these five year companies operation,that was showed $700,000 in 1st year.Here the Rate of Return of the similar estate firms are mentioned in this is 15%.From this table clearly showed about the major loss happened in the operation of the company that was 5th year and the amounted of $ 400,000.In the five year operation of the company 3 year brought gain on sale of assets respectively,$700,000,$600,000 and $400,000 total of $1,700,000.But the company make a loss on sale of assets respectively 4th and 5th years amounted $200,000 and $ 400,000 total of $ 600,000.The company showed higher net income in 2nd year period ,the amount of $2,100,000 and lower net income in two consecutive years i.e., 4th and 5th year amounted of $1,400,000 respectively. With this five years data it provide a clear picture about the companies present condition is good or bad.From this table we can understand that the comapanies net income as a diminishing level with regards to the previous years.But more income spend for the operating purpose.Operating expenses of the company are more than based on the previous years.Year 4 and 5 shows a high operating income but a minus value in the sale of Assets.It make a diminshing margin in the Net income of Mayfield Real Estate Development.