Business Valuation Project Required: Prepare a business valuation report for Ella Stone who has hired you to estimate the value of her 45% common stock interest in L&B Enterprises, Inc. as of December 31, 2021. The report must include a cover letter, explanation of work performed, and supporting schedules. Below are the partial unaudited financial statements for L&B Enterprises, Inc., plus other information, For the Years Ended Income Statements 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 Sales $7,500,000 $7,700,000 $7,200,000 $8,100,000 $8,400,000 Cost of Goods Sold (4,575,000) (4,620,000) (4,248,000) (4,779,000) (4,872,000) Gross Profit 2,925,000 3,080,000 2,952,000 3,321,000 3,528,000 Operating Expenses (1,755,000) (1,830,000) (1,925,000) (2,140,000) (2,210,000) Operating Income 1,170,000 1,250,000 1,027,000 1,181,000 1,318,000 Investment Income (Loss) 5,000 5,500 (25,000) 1,000 (3,000) Gain (Loss) on Fixed Assets 80,000 (60,000) (120,000) 55,000 70,000 Interest Expense (95,000) (74,000) (73,000) (86,000) (85,000) Income Before Taxes 1,160,000 1,121,500 809,000 1,151,000 1,300,000 Income Tax Expense (348,000) (336,450) (242,700) (345,300) (390,000) Net Income $812,000 $785,050 $566,300 $805,700 $910,000 Retained Earnings Statements Beg. Bal. in Retained Earnings $3,500,000 $4,212,000 $4,897,050 $5,313,350 $5,969,050 Net Income 812,000 785,050 566,300 805,700 910,000 Cash Dividends (100,000) (100,000) (150,000) (150,000) (150,000) End. Bal. in Retained Earnings $4,212,000 $4,897,050 $5,313,350 $5,969,050 $6,729,050 Other Information Cash Flow, Operating Activities: $950,000 $1,100,000 $640,000 $980,000 $1,200,000 P/E Ratio for Industry: 11 9 10 13 12 Income tax rate 30% 30% 30% 30% 30% Assumptions for the Valuation Amount Minority interest discount 5% Control premium -0- Lack of marketability discount 25% Loss of a key person discount 13% Five-year weighted average earnings with most recent years weighted heaviest, using operating income Most recent P/E ratio for earnings capitalization The above set of statements may be easily copied and pasted into an Excel file for your use. The requirements of the project are set up to make the calculations as easy as possible to give you a short example of what it is like to calculate a valuation and write a short report. The necessary financial information is provided and all of the assumptions are already made for you so that the valuation can be performed in just a few minutes using Excel. As we learned in the textbook business valuation chapter, a business valuation is an estimate, and assumptions (such as which income line to use, different discount rate amounts, etc.) can be different between different valuators. So, in this project all of the assumptions are given to you so that everyone should come to the same valuation amount. Do not make up any

other assumptions and pay close attention to, and only use, the provided information and assumptions. To stress the exact requirement again, it is repeated here: Required: Prepare a business valuation report for Ella Stone who has hired you to estimate the value of her 45% common stock interest in L&B Enterprises, Inc. as of December 31, 2021. Posted in Canvas: Compute the value of a business interest [Ella Stones 45% common stock interest] using the techniques covered in Chapter 16 and prepare a short business valuation report that should be around four to six pages long. 1. On page one you will write a cover letter to your client stating in summary form what you did and the value you computed. 2. Then, in the next page or two you will discuss your valuation method(s), discounts, and other information relevant to the valuation. Even though the valuation method and the discounts or premiums you are to use are already given to you, still explain why a business valuator would use them; in your writing make it sound as if you decided to use the method and discounts or premiums. 3. The next page or two will contain the Excel statement(s) showing your computations. Submitting your report into Canvas: The complete business valuation report must be submitted in one MS Word file or one PDF file which must also include the supporting schedules. This means that your Excel work must be inserted into the MS Word or PDF file.