Title: Assignment: Competency Assessment: (CU4 M1) Business Valuation
Course: SkillsCom BA 260 15.0

After gaining experience performing a business valuation in the practice Competency Assessment, you will now apply what you learned to a unique scenario, in which you will determine the value of a business that is for sale, and offer recommendations to buyer and seller.

Garner Industries Business Valuation

Jane Winfield would like to buy Ted Garner’s company. She has conducted a detailed financial analysis of Ted’s firm and has determined the following:

Table: Estimated earnings over the next five years:

Year 1 | $200,000
Year 2 | $300,000
Year 3 | $400,000
Year 4 | $500,000
Year 5 | $600,000

1. Jane also believes that it is best to use a conservative discount rate. She has settled on 24%  percent. Using the discounted earnings method, what is Ted’s business worth? Please show your calculations.

Year 1 Discounted Earnings:

1. NPV =

Year 2 Discounted Earnings:

1. NPV =

Year 3 Discounted Earnings:

1. NPV =

Year 4 Discounted Earnings:

1. NPV =

Year 5 Discounted Earnings:

1. NPV =

2. What is the worth of Garner Industries based on the discounted future earnings method?

3. Ted decides an alternative valuation should be given using the excess earnings method. Ted has collected the following information to help him with this learning method:

Adjusted Assets | Book Value | Fair Market Value
Inventory | $200,000 | $300,000
Plant and Equipment | $800,000 | $1,200,000
Other intangibles | N/A | ($100,000)
Totals | 1,000,000 | $1,400,000

1. What is the adjustable tangible book value of assets for Garner Industries?

1. Ted determined that his total value of all assets, including those not adjusted for is $1,200,000 and his total liabilities is $800,000. Calculate adjusted tangible net worth.

1. Calculate the opportunity cost of investing in the business, assuming a 24% discount rate and a $60,000 salary opportunity.

1. Calculate the extra earnings power of Garner Industries over a period of 5 years,using Jane Winfield’s discounted earnings valuation.

1. Determine the value of Garner Industries, according to the excess earnings method.

Recommendations for Exit Strategies:

4. Apart from selling to Jane, Ted is considering a whole range of other exit strategies open to an entrepreneur. Describe one pro and  one con of three possible exit strategies available to Ted and make a recommendation of the most suitable. Make sure to reference the financials above to ascertain the current legal status of Ted’s business.