1.

) I do not believe the initial valuation was appopriate because the formula used
had not considered all the variables, as admitted by Moore

2.) Total Assets (80%) $ 456,000.00

Total Liabilities $ 342,000.00
Total LV $114,000.00

3.) I do believe that all estimates should reflect competitve managerial wages
I believe this because if they do sell the business, it would provide a more realistic
operating margin for the next owner, if they so choose to outsource managerial duties
If the next owner chooses not to hire a manager and run the firm himself, that expense is flex
as he can choose what to pay himself.

4.) Worst Case Base Case Bull Case

EBIT $ 150,000.00 $ 165,000.00 $180,000.00
Life 5 10 15

FCF Worst
Year 1 2 3 4
EBIT $ 150,000.00 $172,950.000 $199,411.35 ###
EBT $ 123,000.00 $ 145,950.00 $172,411.35 ###
*(1-T) $ 97,500.00 $ 112,417.50 $129,617.38 ###
+D&A $ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00
-CapEx $ 16,000.00 $ 38,950.00 $ 42,461.35 $ 19,988.23
FCF = $ 108,500.00 $ 100,467.50 $114,156.03 ###
WACC Disc. 1 1.1502485876 1.323071813 1.521861484
$ 108,500.00 $ 87,344.16 $ 86,281.05 $ 91,481.06

Terminal Value

FCF Base
Year 1 2 3 4
EBIT $ 165,000.00 $ 190,245.00 $219,352.49 ###
EBT $ 138,000.00 $ 163,245.00 $192,352.49 ###
*(1-T) $ 107,250.00 $ 123,659.25 $142,579.12 ###
+D&A $ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00
-CapEx $ 8,000.00 $ 33,245.00 $ 37,107.49 $ 12,387.05
FCF = $ 126,250.00 $ 117,414.25 $132,471.63 ###
WACC Disc. 1.000000000 1.150248588 1.323071813 1.521861484
$ 126,250.00 $ 102,077.28 $100,124.29 ###
Terminal Value

FCF Best
Year 1 2 3 4
EBIT $ 180,000.00 $207,540.000 $239,293.62 ###
EBT $ 153,000.00 $ 180,540.00 $212,293.62 ###
*(1-T) $ 117,000.00 $ 134,901.00 $155,540.85 ###
+D&A $ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00
-CapEx $ 5,333.33 $ 32,873.33 $ 37,086.95 $ 10,119.21
FCF = $ 138,666.67 $ 129,027.67 $145,453.90 ###
WACC Disc. 1 1.1502485876 1.323071813 1.521861484
$ 138,666.67 $ 112,173.72 $109,936.51 ###
Terminal Value

Total Capital Structure $ 450,000.00 Cost of Debt

Share of Debt 49.33% Cost of Equity
Share of Equity 50.67% WACC

5.) Broker's rule of thumb = (FMV of Assets)*1.25 - Debt

$ 490,500.00

6.) The dividend discount model, the valuation model for preffered shares, and the future cas

7.) That would affect negotiations because it would imply that the assets of the firm would be
Once the potential investors see that the assets are overvalued, they would be less inclined t
they know a loss in equity is coming when the book value of the equipment adjusts to be refle
e formula used

erial wages
a more realistic
e managerial duties
imself, that expense is flexible

FCF= (EBIT(1-T)+D&A -( CapEX+∆NOWC)

5 TAX
$207,467.57 CapEx
$180,467.57
$134,853.92 CapEx/Yr
$ 27,000.00
$ 20,067.99
$141,785.93
1.750519023
$ 80,996.51

###

5 6 7 8 9
$228,214.33 ### $303,390.18 $349,808.88 $356,805.05
$201,214.33 ### $276,390.18 $322,808.88 $329,805.05
$148,339.31 ### $197,203.62 $227,375.77 $231,923.28
$ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00
$ 12,474.79 $ 42,916.79 $ 48,259.06 $ 54,418.70 $ 14,996.18
$162,864.52 ### $175,944.55 $199,957.07 $243,927.11
1.750519023 2.013532034 2.316062378 2.664047479 3.064316850
$ 93,037.85 $ 77,037.98 $ 75,967.11 $ 75,057.62 $ 79,602.44

5 6 7 8 9
 $248,961.08 ### $330,971.10 $381,609.68 $389,241.88
$221,961.08 ### $303,971.10 $354,609.68 $362,241.88
$161,824.70 ### $215,131.22 $248,046.29 $253,007.22
$ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00
$ 10,214.92 $ 43,424.38 $ 49,252.31 $ 55,971.91 $ 12,965.53
$178,609.78 ### $192,878.91 $219,074.38 $267,041.69
1.750519023 2.013532034 2.316062378 2.664047479 3.06431685
$102,032.47 $ 84,507.97 $ 83,278.81 $ 82,233.66 $ 87,145.59

15.25% TAX 35%

20% CapEx $ 80,000.00
15.02% CapEx/Yr $ 5,333.33

shares, and the future cash flows model can be used

assets of the firm would be over valued.

ey would be less inclined to invest because
quipment adjusts to be reflective to its market value.
 35% Total Capital Structure ###
$ 80,000.00 Share of Debt 49.33%

$ 16,000.00 Share of Equity 50.67%

Cost of Debt 15.25%

Cost of Equity 20%
WACC 15.0249%

10
$ 363,941.15 TAX 35%
$ 336,941.15
$ 236,561.75 CapEx $ 80,000.00
$ 27,000.00 CapEx/Yr $ 8,000.00
$ 15,136.10
$ 248,425.65 Total Capital Structure $450,000.00 Cost of Debt
3.524726128 Share of Debt 49.33% Cost of Equity
$ 70,480.84 Share of Equity 50.67% WACC
$904,798.49

10 11 12 13 14
$ 397,026.71 $457,771.80 $527,810.89 $608,565.95 ###
$ 370,026.71 $430,771.80 $500,810.89 $581,565.95 ###
$ 258,067.36 $297,551.67 $343,077.08 $395,567.87 ###
$ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00 $ 27,000.00
$ 13,118.17 $ 66,078.42 $ 75,372.42 $ 86,088.40 $ 17,504.65
$ 271,949.19 $258,473.25 $294,704.66 $336,479.47 ###
3.5247261281 4.05431125 4.663465789 5.364144937 6.170100138
$ 77,154.70 $ 63,752.69 $ 63,194.34 $ 62,727.51 $ 66,931.58
 15.25%
of Equity 20.00%
15.02%

15
$ 633,152.02
$ 606,152.02
$ 411,548.81
$ 27,000.00
$ 17,748.08
$ 420,800.73
7.0971489686
$ 59,291.52
###