Having trouble with task #2 - wondering if you could help. All the information needed to complete task #2 is pasted here. It's not incomplete..

Appendix II is not necessary in assisting with Task#2 so I excluded it. I excluded task # 1 & 3 as well as I don't need help with it.

You, CPA, work as a consultant on various engagements. Your client, Over The Edge Ltd. (OTE), has grown from a small custom snowboard manufacturer servicing the local market to a multinational success. Recently, OTE's snowboards were used by a gold medallist in the Winter Olympics!

It's Monday morning, and you are meeting with the company's owner and sole shareholder, Wutang Pan. Also in attendance is Misty Phung, OTE's VP of finance.

Wutang tells you: Fun Consolidators Inc. (FCI), a public company and the largest competitor in the industry, has expressed an interest in acquiring OTE. It has made three similar acquisitions in the past two years two of which were closed and manufacturing was moved to the United States. The other is operated consistent with pre-acquisition.

I hadn't been thinking about selling the company, but things have progressed very quickly with FCI. I'm getting older and I have worked hard for a long time building the business. While my children are still quite young, I don't anticipate that any of them will become involved with the business. So, this might be the right time to sell. As you know, the snowboard industry is cyclical, but it is at its peak right now

I'm very proud to say that OTE has been named one of the "10 Best Small Businesses to Work for" for the past three years. The award is based on financial performance, customer surveys, and employee satisfaction. I have a very dedicated and loyal staff. Many of the staff members are like family to me. In the past seven years, we have not had to lay off any of our employees.

Misty then jumps in

: OTE operates in a stable industry and the results for the company were relatively consistent over the past five years. The December 31 year-end statements are provided in Appendix I. There are a few outstanding accounting issues that may impact them, which I have included in Appendix II. I also put together a memo for you with some information on non-recurring or unusual items incurred by OTE. I will email it to you (Appendix III). Our weighted average capitalization rate is 12%.

In this case, I want you to assume that the present value of the tax shield associated with capital reinvestments is about 10% of the amount spent, which is projected to be $100,000 per year.

As FCI is public, it would not be able to claim a small business deduction for OTE. I would say that FCI could expect to pay corporate tax at the rate of 30%.

Wutang concludes: I'd like to make sure I understand what my company is worth before the offer is received.

Task #2 a) In Excel, create capitalized cash flow valuation for OTE, using the information provided in the appendixes.

b) In Excel, perform adjusted net asset valuation for OTE using the financial statements and information attached. Unless otherwise noted, assume that the carrying value of the assets approximates fair market value.

Appendix I

Over the Edge Inc Statement of Income and retained earnings 31-Dec

Current year Previous year

Sales $8,959,800.00 $8,834,000.00

Cost of sales $5,949,648.00 $6,129,709.00

Gross profit $3,010,152.00 $2,704,291.00

Expenses:

Advertising $357,900.00 $266,500.00

Amortization $219,163.00 $166,584.00

Automobile $140,800.00 $102,600.00

Bad Debt $17,250.00 $19,110.00

Donations $1,200.00 $1,000.00

Dues and fees $7,500.00 $-

Insurance $69,600.00 $57,200.00

Interest/bank charges $119,203.00 $46,600.00

Office $101,200.00 $108,700.00

Professional fee $67,700.00 $34,800.00

Property taxes $44,700.00 $40,900.00

Rent expense $84,654.00 $-

Repairs & Maintenance $207,100.00 $155,100.00

Salaries and wages $1,160,460.00 $1,175,600.00

Travel $117,666.00 $103,900.00

Utilities $67,600.00 $60,200.00

Warranty $72,059.00 $69,482.00

Income before taxes $154,397.00 $296,015.00

Income taxes $33,840.00 $76,754.00

Net income $120,557.00 $219,261.00

retained earning, opening $2,571,214.00 $2,360,953.00

Dividends $48,750.00 $9,000.00

Retained earning, closing $2,643,021.00 $2,571,214.00

Over the Edge Inc - Balance Sheet - December 31

Current Year Previous Year

Cash $4,560.00 $12,720.00

Investment $- $29,850.00

Accounts Receivable $1,370,150.00 $1,112,457.00

Income Tax Receviable $36,160.00 $-

Inventory $1,196,190.00 $938,945.00

Prepaids $4,920.00 $4,920.00

$2,611,980.00 $2,098,892.00

Proprety/Plant & Equip $4,244,413.00 $2,998,749.00

Intangible asset $13,883.00 $-

Due from shareholder $21,500.00 $21,500.00

Total Assets $6,891,776.00 $5,119,141.00

Demand bank loan $375,422.00 $96,800.00

Accounts payable and accrual $1,409,932.00 $1,175,915.00

Warranty accrual $315,231.00 $259,412.00

Deferred revenue $156,500.00 $-

Current portion of term loan $141,000.00 $141,000.00

Income tax payable $0 $11,700.00

$2,398,085.00 $1,684,827.00

Term loan $572,000.00 $713,000.00

Other long-term liabilities $1,128,570.00 $-

$1,700,570.00 $713,000.00

Share capital $150,100.00 $150,100.00

Retained earnings $2,643,021.00 $2,571,214.00

Liabilities and Shareholders equity $6,891,776.00 $5,119,141.00