Jane Winfield would like to buy Ted Garners gourmet coffee shop. She has conducted a detailed financial analysis of Teds firm and has determined the following:

Current owner salary = $35,000

Market rate for a business manager = $65,000

Multiple = 5

Book value of the inventory: $10,000

Number of shares of common stock: 5,000

Price/earnings ratio: 6

Gross Margin = $150,000

Estimated EBITDA = $78,000

Based on this information, how much should Jane valuate the business according to each of the following methods?

business valuation using multiple of cash flow and EBITDA Salary Adjustment

$48,000 = 78000 + 35000 - 65000

P/E

Multiple of Gross Margin (using a multiple no greater than 2

Based on your findings, recommend the valuation method she should use.

Finally, given all of your calculations, estimate what the final price will be. Give reasons for this estimate. Georgia Isaacson and her son Rubin have been thinking about buying a business. After talking to seven entrepreneurs, all of whom have expressed an interest in selling their operations, the Isaacsons have decided to make an offer for a retail clothing store. The store is very well located, and its earnings over the past five years have been excellent. The current owner has told the Isaacsons he will sell for $500,000. The owner arrived at this value by using his EBITDA at a multiple of seven