1. Assume the role of a prospective buyer for these two businesses. How would you conduct the due diligence necessary to determine whether they would be good investments?

2. Do you notice any red flags" or potential problems in either of these deals? Explain.

3. Which techniques for estimating the value of these businesses would be most useful to a prospective buyer of these companies? Are the owners' asking prices reasonable?

The purchase price includes 1,500 fiberglass seat molds for every major brand and model of both street and off-road motorbike and intellectual property in the form of 82 patents and copyrights. Corbin is asking $9 million for the patented seat molds, $1.5 million for machinery and equipment, and $719,000 for inventory. Motorcycle sales in the United States have increased 75 percent over the last decade, and Corbin-Pacific is well known to motorcycle enthusiasts from coast to coast and counts celebrities such as Arnold Schwarzenegger and Jay Leno as customers. Corbin says that he is willing to stay on to work with the new owner for up to two years to ensure a smooth transition. Indiana Machine Shop This Indiana machine shop is one of approximately 21,000 across the nation that fabricate, press, bend, and drill custom metal products. The sellers, a machinist and his wife, started the company with hand-operated machines, but as the business grew, they invested in computerized numerical control (CNC) equipment that not only increases productivity but also gives them the ability to design custom products and build prototypes quickly and efficiently. The company, which now employs 65 people, generated sales of $8.2 million last year and earned a net income of $625,000, with an EBITDA of $757,150. The company has a diversified customer base and fabricates a variety of products, from wheelchair lifts to livestock feeding systems. Both sales and profits have a strong history of growth. A team of experienced managers is in place and willing to work for the new owner. An analysis of other machine shop sales shows that the typical price is 5.4 times EBITDA. The owners, both in their mid-40s, are asking $5.3 million for this machine shop, saying that they are ready to move on to other business opportunities. The asking price includes machinery and equipment valued at $2,675,000, real estate at $957,000, and inventory at $750,000