Finance corporate

B6301: Corporate Finance

Clarkson Lumber C
C
Co.
Valuation

Clarkson Valuation

Navin Chopra

1

Clarkson, 1996
• At the beginning of 1996, company is entirely owned by Mr.
Clarkson
• Following tight funding during a period of good business performance, the company has obtained debt funding to payoff the trade credit, NP trade
• While financials for the first quarter of 1996 are available, we will value the company as at the beginning of 1996/end of 1995

Clarkson Valuation

Navin Chopra

2

Clarkson Financials
Exhibit 1 Operating Expenses for Years Ending December 31, 1993-1995, and for First Quarter 1996
(thousands of dollars)
1st
Quarter
1996
1993
1994
1995
Net sales
$2,921
$3,477
$4,519
$1,062 a
Cost of Goods Sold:
Beginning inventory
330
337
432
587
Purchases
2,209
2,729
3,579
819
$2,539
$2 539
$3,066
$3 066
$4,011
$4 011
$1,406
$1 406
Ending inventory
337
432
587
607
Total Cost of Goods Sold
$2,202
$2,634
$3,424
$799
Gross profit
719
843
1,095
263
622
717
940
244
Operating expenses b
Earnings before interest and taxes
$97
$126
$155
$19
Interest expense
I t t 23
42
56
13
Net income before income taxes
$74
$84
$99
$6 c 14
16
22
1
Provision for income taxes
Net income
$60
$68
$77
$5 a In the first quarter of 1995, sales were $903,000 and net income was $7,000.
Operating expenses include a cash salary for Mr. Clarkson of $75,000 in 1993; $80,000 in 1994;
$85,000 in 1995; and $22,500 in the first quarter of 1996. c Clarkson Lumber was required to estimate its income tax liability for the current tax year and pay four quarterly estimated tax installments during that year. The first $50,000 of pretax profits were taxed at a 15% rate; the next $25,000 were taxed at a 25% rate; the next $25,000 were taxed at a 34% rate; and profits in excess of $100,000 but less than $335,000 were taxed at a 39% rate. b Clarkson Valuation

Navin Chopra

3