Part 5: Business Valuation for Purchase Complete quantitative analysis in Excel and qualitative analysis in WORD. (35 marks) [CLR 7]

Background

An opportunity has presented itself to Ken for a snow removal service company that is for sale. The company seems to have a good reputation in the community. Ken meets with the current owner, Bjorn, who is 53 years old. Bjorn tells Ken hes been clearing snow for 30 years and its time to slow down and enjoy winters. Bjorns company has two trucks with shovels, two snow blowers, and an assortment of tools. Bjorn has two part-time workers who he says reliably show up every winter and like the part-time work structure, hours, and pay. He doesnt foresee any problems if Ken were to become the new owner and their new boss.

Bjorn tells Ken that the landlord of the small storage unit that also has an office, is very easy to get along with and hasnt raised the rent in ten years. He and Bjorn have become good friends. Ken thinks that the unit would be perfect to operate out of year-round as Bjorn currently has personal items in the unit that would be removed, such a motorcycle and a snowmobile. Bjorn tells Ken his company has made around $55,000 - $60,000 for the past three years, which is pretty good for winter work. With the companys good reputation, he would want $200,000 for the business.

Ken tells Bjorn he is interested in purchasing the business. However, he first would like to review Bjorns financial statements for the past 5 years. He will also contact a mechanic to review the trucks and other equipment.

1. (25 marks) Complete in Excel Go to the Excel file, MGT2303 Final Project. Go the worksheet called . Financial and additional information is provided.

1. (i) Calculate the value of Bjorns business using the asset-based method (8 marks)

   (ii) Calculate the value of Bjorns business using the earnings-based method. (17 marks)

2. (300 500 words 10 marks) Complete in WORD

1. Using the quantitative calculations from part (a) comment on Bjorns asking price of $200,000 for his business.

2. Then use the quantitative calculations and add qualitative analysis to provide what you believe would be a fair price for the business. Provide at least three good reasons why you feel this price would be a fair price.