Paint Pen
Q-1 What valuation(s) can we place on the business? What method(s) did you use to arrive at the valuation(s)?
Valuation Based on Discounted cash Flow
Discounted Cash Flow Paint Pen Value using this model is $8.17M. The WACC used for discounting cash flows was 16%. We had made the following assumptions about revenues projections which were based on our growth strategy:
15% growth rate in FY-1997R
17% growth rate in FY-1998E
20% growth rate in FY-1999E
25% growth rate in FY-2000E
Gross Margin increases from 37.2% in 1996 to 38 %in 1997 and 1998, from 38% in 1998 t0 39% in 1999 and from 39%in 1999 to 40% in 2000. We expect that the gross margin will improve further in the coming years and target a Gross Margin of 45 %.
Selling General and Administrative expenses were 20 % for 1996 and 1997 and we anticipate an increased in the Selling General and Administrative Expenses to be 22% of sales in the year 1998,1999 and 2000
The following income and expenses were expected to remain constant for the period 1996- 2000
Other operating income $20,000.
Provision for Income tax - $712,490
Provision for depreciation - $123,010.
CAPEX NIL
Net Change in Working Capital 746460
Valuation Based on P/E Multiple
The second valuation technique we used is P/E Multiple. We would value Paint pen at$6,943,040 at a P/ E Multiple of 8x of the earning in the fiscal year 1996($867,880*8)
Liquidation based Value:
We valued Paint Pen at .966 M based on what we would be able to realize if all the of Paint Pen were sold and the company was liquidated assets.
Assets for Liquidation Book Value % Recovery in Liquidation Recovery In Liquidation
Current Assets
Cash 16680 100% 16680
Note Receivables 1118 65% 726.7
Account Receivables (Less allowances for doubtful collections ) 43109 60% 25865.4
Inventories 96613 50% 48306.5
Total Current Assets 157520 91578.6
Furniture ,Fixture ,Machinery
Valuation Based on Discounted cash Flow
Discounted Cash Flow Paint Pen Value using this model is $8.17M. The WACC used for discounting cash flows was 16%. We had made the following assumptions about revenues projections which were based on our growth strategy:
15% growth rate in FY-1997R
17% growth rate in FY-1998E
20% growth rate in FY-1999E
25% growth rate in FY-2000E
Gross Margin increases from 37.2% in 1996 to 38 %in 1997 and 1998, from 38% in 1998 t0 39% in 1999 and from 39%in 1999 to 40% in 2000. We expect that the gross margin will improve further in the coming years and target a Gross Margin of 45 %.
Selling General and Administrative expenses were 20 % for 1996 and 1997 and we anticipate an increased in the Selling General and Administrative Expenses to be 22% of sales in the year 1998,1999 and 2000
The following income and expenses were expected to remain constant for the period 1996- 2000
Other operating income $20,000.
Provision for Income tax - $712,490
Provision for depreciation - $123,010.
CAPEX NIL
Net Change in Working Capital 746460
Valuation Based on P/E Multiple
The second valuation technique we used is P/E Multiple. We would value Paint pen at$6,943,040 at a P/ E Multiple of 8x of the earning in the fiscal year 1996($867,880*8)
Liquidation based Value:
We valued Paint Pen at .966 M based on what we would be able to realize if all the of Paint Pen were sold and the company was liquidated assets.
Assets for Liquidation Book Value % Recovery in Liquidation Recovery In Liquidation
Current Assets
Cash 16680 100% 16680
Note Receivables 1118 65% 726.7
Account Receivables (Less allowances for doubtful collections ) 43109 60% 25865.4
Inventories 96613 50% 48306.5
Total Current Assets 157520 91578.6
Furniture ,Fixture ,Machinery