Please help solve these problems and see attached documents below for the problems and solution template

PROBLEM 8-1 Given Sale price Square footage Selling price/sq ft Time on the market $ $ Comp #1 240,000.00 $ 2,240 107.14 $ 61 days Solution a. b. c. Average price per square foot Estimated Value Comp #2 265,000.00 2,145 123.54 32 days 2121 Tartar Circle 3,000 Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output PROBLEM 8-2 Current year EPS Growth rate in EPS for next year P/E Multiple (range) Estimated Value (current EPS) Estimated Value (forward EPS) $ 2.50 20% 10 15 Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output PROBLEM 8-3 THOUGHT QUESTION a. Parry Electronics is a regional electronics wholesaler and distributor which earned $1,250,000 in EBITDA this year based on revenues of $4,000,000. The enterprise values of publicly traded firms that operate in the same industry currently are valued at 5-6 times their current EBITDA. What is your estimate of the enterprise value of Parry Electronics? If Parry is small relative to the size of the comparison firms with assets only one-tenth the size of the largest firm in the industry, how would this influence your valuation estimate? Explain. Answer: THOUGHT QUESTION b. Suppose we have two companies, A and B which produce identical products using slightly different production processes. The process used by company A requires more capital equipment, which is already paid for, and can produce the the product at lower per unit costs. Now, assume that you have been asked to value Company B which is privately held and that you want to use Company A, which is publicly traded, as the basis for your valuation. Discuss how differences in the production processes of these firms affect both their multiples and discount rates. Relate your answer to the discussion of the valuation of the two office buildings discussed in the chapter. Answer: THOUGHT QUESTION c. In the tech sector, the price of an IPO is often stated as a multiple of its sales, which is then compared to the price/sales ratio of comparable firms. Why do you think that analysts use price/sales ratios in this setting rather than price/earnings ratios? Answer: Answer: The problem is that many of these firms do not have positive earnings, so sales is the best valuation metric that can be used. It should be noted that sales multiples are not particularly informative in most cases, and are only used when there are not good alternatives . Answer: Answer: The problem is that many of these firms do not have positive earnings, so sales is the best valuation metric that can be used. It should be noted that sales multiples are not particularly informative in most cases, and are only used when there are not good alternatives . Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer req = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output PROBLEM 8-6 Given Cost of goods sold/Revenues Fixed operating costs Variable operating costs/Revenues Depreciation expense Salary adjustments Annual outsourcing savings/Revenues $ $ $ 65% 350,000 10% 50,000 100,000 10% Historical Incomes Statements for Toys 'n Thing, Inc. 2014 Revenues $ 2,243,155 $ Cost of goods sold (1,458,051) Gross profits 785,104 General and Administrative Expenses* (574,316) Net Operating Income $ 210,789 $ 2013 2,001,501 $ (1,300,976) 700,525 (550,150) 150,375 $ 2012 2,115,002 (1,374,751) 740,251 (561,500) 178,751 *Includes depreciation expense of $50,000 per year. Solution a. Net Operating Income Plus: Depreciation expense EBITDA Valuation $ $ EBITDA Multiple 3 4 2014 210,789 50,000 260,789 Years 2013 $ 150,375 50,000 $ 200,375 2014 2013 Average b. EBITDA Plus: Salary adjustments Plus: Outsourcing savings Adjusted EBITDA Valuation Average Asking price = 5 x 2010 Unadjusted EBITDA $ EBITDA Multiple 3 4 2014 260,789 100,000 2014 $ 2013 200,375 100,000 2013 Estimated value after adjustments Solution Legend = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output ars 2012 178,751 50,000 $ 228,751 $ 2012 $ 2012 228,751 100,000 2012 PROBLEM 9-2 Solution Legend Given Discount rate Year 5 multiple Debt (0) Year 1 2 3 4 5 $ 15% 6.00 2,400,000 Cash flows $ 1,200,000 Solution a. Enterprise Value b. Equity Value = Value given in problem = Formula/Calculation/Analysis required = Qualitative analysis or Short answer required = Goal Seek or Solver cell = Crystal Ball Input = Crystal Ball Output quired wer required Problem 8-6 NORMALIZING EBITDA Jason Kidwell is considering whether or not to acquire a local toy manufacturing company, Toys 'n' Things Inc. The company's annual income statements for three years are as follows: 2014 Revenues Cost of goods sold Gross profits Depreciation and administrative expenses Net operating income 2,243,155 (1,458,051) 785,104 (574,316) 210,789 2013 2012 2,001,501 (1,300,976) 700,525 (550,150) 150,375 2,115,002 (1,374,751) 740,251 (561,500) 178,751 a. Jason has learned that small private companies such as this one typically sell for EBITDA multiples of three to four times. Depreciation expense equals $50,000 per year. What value would you recommend Jason put on the company? b. The current owner of Toys 'n' Things indicated to Jason that he would not take less than five times 2010 EBITDA to sell out. Jason decides that, based on what he knows about the company, the price could not be justified. However, upon further investigation, Jason learns that the owner's wife is paid $100,000 a year for administrative services that Jason thinks could be done by a $50,000 per year assistant. Moreover, the owner pays himself a salary of $250,000 per year to run the business, which Jason thinks is at least $50,000 too high based on the demands of the business. In addition, Jason thinks that by outsourcing raw materials to Asia, he can reduce the firms cost of goods sold by 10%. After making adjustments for excessive salaries, what value should Jason place on the business? Can Jason justify the value the owner is placing in the business? Problem 9-2 ENTERPRISE VALUATION In the summer of 2015, Smidgeon industries was evaluating whether to purchase one of its suppliers. The supplier, Carswell Manufacturing, provides Smidgeon with the raw steel Smidgeon uses to fabricate utility trailers. One of the first things that Smidgeon's management did was to forecast the cash flows of Carswell for the next five years: Year 1 2 3 4 5 cash flows $1,200,000 1,260,000 1,323,000 1,389,150 1,458,608 Next, Smidgeon's management team looked at a group of similar firms and estimated Carswell's cost of capital to be 15%. Finally, the team estimated that Carswell would be worth approximately six times its year 5 cash flow in five years. a. What is your estimate of the enterprise value of Carswell? b. What is the value of the equity of Carswell if the acquisition goes through and Smidgeon borrows $2.4 million and finances the remainder using equity