Assignment: Forensic and Investment
Exercise I
Why would a forensic accountant need to perform a business valuation? Can people not just look up the value at a particular date on the appropriate stock exchange? Explain.
Exercise II
The XYZ Company is a closely held family manufacturing business. During the last five years, the company has experienced earnings of $700, $750, $400, $800, and $950 (all amounts in $1,000). The valuation expert has determined that the most appropriate approach is to use the income method with weighted average income as the most logical basis for measuring earnings. The expert weights the income so that the most recent years of earnings are the most important. Also, assume that considering the small size of the business relative to its competitors, the most appropriate price-earnings ratio is 9. Also, assume that the purpose of this valuation is to determine the value of the 12 percent equity in the business owned by the firm's long-time director of R&D and manufacturing who has decided to retire from the business. After careful analysis the valuation expert has determined that the loss of this key employee discount is 10 percent, and the minority interest discount is 30 percent. Determine the value of the 12 percent interest of the retiring employee.
Exercise III
Two partners, Jones and Smith, owned and operated a successful dairy business together for 15 years. The business processed dairy products and operated a popular retail ice cream store. During the past year, the two partners have had an increasing number of serious arguments about how to operate the business and about planned future expansion of the business. Both partners have agreed that they no longer can operate the business together. Either partner is willing to sell his share of the business to someone else and to get out of the dairy business altogether. An independent appraiser has valued the total value of the business at $1.5 million. Partner Jones owns 49 percent of the business, and Partner Smith owns 51 percent of the business. What is the value of each partner's share of the business? What was the basis for your evaluation of the partners' share of the business?
Format your assignment according to the following formatting requirements:
(1) The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
(2) The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
(3) Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.