Reference no: EM132499499
You are interested in buying a local machine shop business. You have gathered the following information from the current owner and his accountant.
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 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.
2. Calculate EBITDA for this business.
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.