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This is our Calculation of Value Engagement letter.  It's not a contract binding you to payment, just an explanation of the procedures we will perform when we value your company.  Please review and indicate your agreement below.

We will perform a calculation of value of 100% of the equity of your company, as of the balance sheet date you provide. As defined by the AICPA’s Statement on Standards for Valuation Services No. 1, a calculation engagement is an engagement to estimate value wherein the business valuation analyst and the client agree on the specific approaches and methods that the analyst will use and the extent of procedures the analyst will perform to estimate the value of a subject interest. A calculation engagement generally does not include all of the valuation procedures required in a full business valuation engagement. If a full business valuation engagement had been performed, the results might have been different.

This calculation will not include any real estate used by the business, whether owned by the company or not, or the associated mortgage(s). We will employ three methods in this calculation, and compare the results. The following is a short description of the calculations performed under each method.

Income Basis

1. Estimate the Rate of Return required by equity investors using data provided by Stocks, Bonds, Bills and Inflation, Valuation Edition 2015 Yearbook, and IBIS World Industry Reports,
2. Approximate a hypothetical acquirer’s debt and long term interest rate,
3. Project future cash flows based on your expected growth rates and long term inflation rates (using data provided by Economic Outlook Update™ from Business Valuation Resources), after adjusting for projected interest expenses and income taxes (as applicable),
4. Determine the present value of future cash flows,
5. Approximate the required level of net working capital based on industry data from RMA Statement Studies, and determine if an adjustment for working capital is necessary,
6. Calculate the Weighted Average Cost of Capital,
7. Calculate the value of equity – Income Basis.

In this calculation, the client will provide estimates of the business’s projected revenue, cash flows, projected growth, and fair market value of assets. We have not audited the financial information provided and offer no opinion regarding the company's financial statements. The information provided by the client is presumed to be accurate and complete.

Market Basis

We will calculate the value of your company by comparing it to other companies of similar size in the same industry that have been sold in the last ten years. We will search Pratt’s Stats database (a listing of private company transactions) for transactions involving companies with the same NAICS code, and annual sales in a range of your company, occurring in the last ten years. Where applicable, we may limit the search to transactions where the acquirer purchased the stock or the assets of the selling company.

We will divide each company’s acquisition price by its annual sales, and calculate the median value for the group. We will also divide each company’s acquisition price by its operating income, and again calculate the median value for the group. We will multiply each of these ratios by the appropriate data for your company, and proportionally blend the values based on the R squared atributes of the group.

We will calculate the value of equity – market basis, after making appropriate adjustments for net working capital, excess assets, and long term debt.

Asset Basis

We will use the fair market value of assets and liabilities information you provide as an additional basis of value, and compare it to the results of our calculations. We will compare our findings from each basis of calculation, and recommend the most appropriate calculation method in our opinion.

Our fee for the service will be $799. We require full payment before we begin to prepare your report. Fees for additional services you request will be billed at our standard hourly rate. Our service is subject to the following limiting conditions:

Limiting Conditions

1. We assume no responsibility for a seller’s or buyer’s inability to obtain a purchase contract based on this calculation.
2. Possession of this report, or a copy thereof, does not carry with it the right of publication of all or part of it, nor may it be used for any purpose by anyone but the client without the previous written consent of the client or us, and in any event, only with proper attribution.
3. Our compensation is not contingent on an action or event resulting from the use of this report.
4. This calculation contemplates facts and conditions existing as of the calculation date. Events and conditions occurring after that date have not been considered, and we have no obligation to update our report for such events and conditions.
5. This engagement cannot be relied upon to disclose errors, fraud, or violations of laws or governmental regulations attributable to the company that may exist.
6. We have not audited the financial information provided upon which this valuation is based. Information provided by the client about the subject company's results from operations, financial position, and future expectations are presumed to be accurate.

We appreciate this opportunity to be of service to you. If you agree with all of the foregoing terms, please enter your name and date in the appropriate fields, check the "Acknowledge and Agree" box below, and Submit.