You are interested in purchasing a widget business. The business is 5 years old and has seen steady growth in revenues and profits each year since its founding. Assume that net income has been the following:

2020 - $6,000

2019 - $4,000

2018 - $3,500

2017 - $1,000

2016 - $600

The owner has given you the following balance sheet for your review.

ASSETS

Current Assets

Cash $2000

Accounts Receivable $500

Inventory $400

Total Current Assets: $2900

Fixed Assets

Equipment $2900

Less accumulated depreciation ($1100)

Total Fixed Assets: $1800

TOTAL ASSETS $4700

LIABILITIES

Current Liabilities

Accounts Payable $300

Other Liabilities $300

Accrued Taxes $100

Total Current Liabilities: $700

Long-term Liabilities

Long-term Debt $2000

Total Long-term Liabilities: $2000

TOTAL LIABILITIES $2700

It is now your task to establish a valuation for the business using the following:

1. BASIC BALANCE SHEET METHOD (2 points)
2. ADJUSTED BALANCE SHEET TECHNIQUE (4 points)
3. EXCESS EARNINGS METHOD (10 points)

4. MARKET APPROACH (6 points)

Use the following assumptions (may not need all of them):

1. 20 percent of the accounts receivable are over 180 days old.
2. 20 percent of the inventory is outdated and essentially useless.
3. The owner did not include a bill that is owed (i.e., accounts payable) in the amount of $200.
4. Assume a 25 percent rate of return.
5. Assume an additional opportunity cost of $700 for salary forgone if you purchase the business.
6. Assume a years-of-profit figure of 4 for this business.
7. Assume a most likely growth rate of 20 percent per year for the business over the next 5 years.
8. Assume that four publicly traded firms that sell widgets similar to this widget company trade at a P/E ratios of 6, 8, 10, and 15 respectively.

MAKE SURE YOU SHOW YOUR WORK/CALCULATIONS (clearly highlight or circle your final answers for each valuation method).