Questions

Using the Capitalized Earnings formula, determine the value of Doug's Steakhouse under the following criteria:

1. Calculate the average earnings using the average-weighted method.

2. For interest rate, use CIBC's five year fixed mortgage rate of 4.79%.

Instructions

• Show your calculations for Capitalized Earnings Method
• Explain why using the Average-Weighted Method is more appropriate than just calculating average earnings on an unweighted basis for the past five years

Scenario Dougie, owner of Doug's Steakhouse, has decided to sell his business due to sharply declining sales that arose from the pandemic. Dougie assumed control of the steakhouse after his father and founder of Doug's Steakhouse, passed away five years ago. Sales soared after Dougie updated the steakhouse's 30 year menu and Dougie having received several industry awards for his Signature Steaks. Profits climbed steadily after Dougie decreased COGS and cut operating expenses. Net income at Doug's Steakhouse for the past five years were as follows. Year Ending Net Income Dec 31, 2020 $20,000 Dec 31, 2019 $80,000 Dec 31, 2018 $40,000 Dec 31, 2017 $20,000 Dec 31, 2016 $18,000 Scenario Dougie, owner of Doug's Steakhouse, has decided to sell his business due to sharply declining sales that arose from the pandemic. Dougie assumed control of the steakhouse after his father and founder of Doug's Steakhouse, passed away five years ago. Sales soared after Dougie updated the steakhouse's 30 year menu and Dougie having received several industry awards for his Signature Steaks. Profits climbed steadily after Dougie decreased COGS and cut operating expenses. Net income at Doug's Steakhouse for the past five years were as follows. Year Ending Net Income Dec 31, 2020 $20,000 Dec 31, 2019 $80,000 Dec 31, 2018 $40,000 Dec 31, 2017 $20,000 Dec 31, 2016 $18,000