Valuation Based on Discounted cash Flow
Discounted Cash Flow Paint Pen Value using this model is $8.17M. The WACC used for discounting cash flows was 16%. We had made the following assumptions about revenues projections which were based on our growth strategy:
15% growth rate in FY-1997R
17% growth rate in FY-1998E
20% growth rate in FY-1999E
25% growth rate in FY-2000E
Gross Margin increases from 37.2% in 1996 to 38 %in 1997 and 1998, from 38% in 1998 t0 39% in 1999 and from 39%in 1999 to 40% in 2000. We expect that the gross margin will improve further in the coming years and target a Gross Margin of 45 %.
Selling General and Administrative expenses were 20 % for 1996 and 1997 and we anticipate an increased in the Selling General and Administrative Expenses to be 22% of sales in the year 1998,1999 and 2000
The following income and expenses were expected to remain constant for the period 1996- 2000
Other operating income $20,000.
Provision for Income tax - $712,490
Provision for depreciation - $123,010.
Net Change in Working Capital 746460
Valuation Based on P/E Multiple
The second valuation technique we used is P/E Multiple. We would value Paint pen at$6,943,040 at a P/ E Multiple of 8x of the earning in the fiscal year 1996($867,880*8)
Liquidation based Value:
We valued Paint Pen at .966 M based on what we would be able to realize if all the of Paint Pen were sold and the company was liquidated assets.
Assets for Liquidation Book Value % Recovery in Liquidation Recovery In Liquidation
Cash 16680 100% 16680
Note Receivables 1118 65% 726.7
Account Receivables (Less allowances for doubtful collections ) 43109 60% 25865.4
Inventories 96613 50% 48306.5
Total Current Assets 157520 91578.6
Furniture ,Fixture ,Machinery