Due Date: April 22, 2017

Instructions

You have been engaged to perform a valuation of 100% of the equity of Hogie Industries, Inc., a fabricated structural metal manufacturing company as of June 30, 2015 using a capitalization of cash flows method under the income approach and prepare a Summary Report. You will submit only the Report as discussed below.

Information Provided

1. Five (5) years of historical balance sheets and income statements Excel file

2. Duff & Phelps Data Exhibits A-1 to A-8

3. North American Industry Classification System (NAICS) 332312 Fabricated Structural Metal Manufacturing company description

4. First Research Industry Report Architectural & Structural Metals Manufacturing for industry benchmark data

5. Federal Reserve Statistical Analysis H.15 (519) July 6, 2015

Requirements

1. Perform a financial analysis of the data. Only calculate the ratios for 2015.

2. Calculate the fair market value of 100% of the equity using a capitalization of cash flows method under the income approach.

a. Determine how many years of historical data you will use to estimate the ongoing economic benefit stream, i.e. cash flows to equity

b. Determine if you are going to average the periods and if so, how you are going to average them (i.e., simple average, weighted-average, etc.)

c. Calculate the ongoing adjusted net cash flows to equity

d. Determine the Cost of Equity (i.e., capitalization rate) using a build-up method (BUM) and the Duff &

Phelps risk premium data; use the Livingston Survey to estimate the long-term sustainable growth for the company

Hogie Enterprises, Inc.
Historical Balance Sheets
					June 30,
					2011			2012			2013			2014			2015
Assets						Common			Common			Common			Common			Common
	Current Assets					Size			Size			Size			Size			Size
		Cash and cash equivalents			$671,895			$62,399			$77,403			$459,933			$19,881
		Certificates of deposit			703,059			40,000			-			-			212,127
		Marketable securities			465,410			1,066,665			983,390			988,541			1,050,993
		Accounts receivable			1,619,077			2,597,874			1,900,926			2,214,553			1,547,417
		Other receivables			24,232			24,353			1,006			1,006			15,220
		Inventory			663,027			535,789			496,028			649,784			577,423
		Prepaid expenses			22,950			50,200			59,936			23,141			15,872
		Other current assets			84,881			228,968			205,987			67,672			992
	Total Current Assets				4,254,531			4,606,248			3,724,676			4,404,630			3,439,925
	Fixed Assets
		Machinery and equipment			2,262,888			2,237,850			2,257,170			1,700,013			1,686,202
		Automotive equipment			1,194,116			826,699			826,699			451,137			417,472
		Office furniture and fixtures			240,995			219,065			203,072			157,362			157,362
		Buildings and improvements			1,115,707			1,120,107			1,120,107			305,777			305,777
		Land			96,000			96,000			96,000			-			-
		Total Fixed Assets			4,909,706			4,499,721			4,503,048			2,614,289			2,566,813
		Less: Accumulated depreciation			(3,910,402)			(3,651,203)			(3,755,724)			(2,402,522)			(2,335,735)
	Net Fixed Assets				999,304			848,518			747,324			211,767			231,078
	Other Assets
		Loan receivable - Stockholder			148,130			138,130			138,130			131,736			125,326
	Total Other Assets				148,130			138,130			138,130			131,736			125,326
Total Assets					$5,401,965			$5,592,896			$4,610,130			$4,748,133			$3,796,329
Liabilities & Shareholders' Equity
	Current Liabilities
		Accounts payable			659,664			1,403,537			1,121,611			1,214,574			812,319
		Accrued expenses			66,912			91,627			85,525			97,177			28,896
		Long-term debt - Current maturities			944,753			1,020,597			926,543			907,173			842,014
	Total Current Liabilities				1,671,329			2,515,761			2,133,679			2,218,924			1,683,229
	Long-Term Liabilities
		Long-term debt			302,019			218,160			174,067			166,526			263,523
	Total Long-Term Liabilities				302,019			218,160			174,067			166,526			263,523
Total Liabilities					1,973,348			2,733,921			2,307,746		-	2,385,450			1,946,752
Stockholders' Equity
		Common stock			10,000			10,000			10,000			10,000			10,000
		Additional paid in capital			40,082			40,082			40,082			40,082			40,082
		Less: Treasury stock			(6,000)			(6,000)			(6,000)			(6,000)			(6,000)
		Retained earnings			3,384,535			2,814,893			2,258,302			2,318,601			1,805,495
Total Stockholders' Equity					3,428,617			2,858,975			2,302,384			2,362,683			1,849,577
Total Liabilities & Stockholders' Equity					$5,401,965			$5,592,896			$4,610,130			$4,748,133			$3,796,329
Working Capital					2,583,202			2,090,487			1,590,997			2,185,706			1,756,696
								492,715			499,490			(594,709)			429,010
Fixed assets								(409,985)			3,327			(1,888,759)			(47,476)
Total Debt					1,246,772			1,238,757			1,100,610			1,073,699			1,105,537
								(8,015)			(138,147)			(26,911)			31,838

Hogie Industries, Inc.
Historical Income Statements
					Year Ended June 30,
					2011			2012			2013			2014			2015
						Common			Common			Common			Common			Common
Revenue						Size			Size			Size			Size			Size
	Construction revenue				$12,241,984			$10,900,205			$11,247,375			$12,516,872			$14,257,635
	Other operating revenue				67,720			78,118			66,601			113,083			80,022
		Total Revenue			12,309,704			10,978,323			11,313,976			12,629,955			14,337,657
Cost of Revenue
	Direct costs				6,325,874			5,489,625			5,985,221			6,589,745			7,325,896
	Indirect costs and overhead				1,433,606			1,152,325			1,210,610			1,345,815			1,435,698
		Total Cost of Revenue			7,759,480			6,641,950			7,195,831			7,935,560			8,761,594
Gross Profit					4,550,224			4,336,373			4,118,145			4,694,395			5,576,063
Operating Expenses:
		General and administrative			2,102,795			1,851,585			1,691,134			1,688,506			1,689,452
		Depreciation			234,976			187,191			141,863			127,455			106,374
		Total Operating Expenses			2,337,771			2,038,776			1,832,997			1,815,961			1,795,826
Income From Operations					2,212,453			2,297,597			2,285,148			2,878,434			3,780,237
Other Income / (Expense)
	Rental income				38,500			38,500			31,700			16,890			-
	Dividend income				11,566			27,383			27,581			26,288			37,306
	Interest income				15,341			3,740			481			8			619
	Capital gain distributions				-			8,693			5,377			1,615			2,523
	Gain/(loss) on sale of marketable securities				-			-			5,320			(9,013)			(31,037)
	Gain on sale of fixed assets				-			-			-			684,533			12,761
	Interest expense				(46,313)			(47,758)			(45,532)			(41,793)			(33,511)
		Total Other Income / (Expense)			19,094			30,558			24,927			678,528			(11,339)
Income Before Provision for Income Taxes					2,231,547			2,328,155			2,310,075			3,556,962			3,768,898
Provision for Income Taxes					(758,726)			(791,573)			(785,426)			(1,209,367)			(1,281,425)
Net Income					$1,472,821			$1,536,582			$1,524,649			$2,347,595			$2,487,473

							Compound
							Annual
							Growth Rate
	2011	2012	2013	2014	2015		(CAGR)
Revenue
Gross Profit
Net Income

Hogie Industries, Inc.
Ratio Analysis
Year			Unit		2015
Liquidity Ratios
	Current Ratio		Number
	Quick Ratio		Number
	Working Capital (dollars)		Dollars
Profitability Ratios
	Gross Profit Percentages		Percent
	Pre-tax Return on Net Worth		Percent
	Pre-tax Return on Assets		Percent
Efficiency Ratios
	Days in Accounts Receivable		Number
	Inventory Turnover		x0.00
	Accounts Payable to Sales		Percent
	Total Assets to Sales		Percent
	Fixed Assets to Net Worth		x0.00
Capital Structure Ratios
	Total Debt to Net Worth		x0.00
	Interest Coverage (i.e., Times Interest Earned)		x0.00