Reference no: EM131935926
Business valuation
The Branson Trucking Company was started by three brothers in Columbus, Ohio in 1987. In 1992, Dave James came into the company primarily for marketing and growth purposes. Soon Dave showed that he was effective at increasing business and making deals that caused the company to grow significantly. Within 10 years, Branson trucking was one of the major regional carriers in the central Midwest.
Over the years, the Branson brothers gave stock options to Dave James to keep him happy with the firm and to reflect his contributions to the firm's growth and general success. Dave exercised these options over time, and by 2005, the three Branson brothers and Dave James each owned 25 percent of the stock of the Branson Trucking Company.
By the late-2000s, two of the Branson brothers wanted to bring their children and spouses into the trucking company. The role that these family members would play in the business created significant discussions and some strife. Dave James in particular was opposed to bringing in additional family members. Dave threatened to leave the company, and some of the Bransons thought this was a good idea. After several months of negotiations, it was agreed that Dave James would receive one years severance pay, and the three Branson brothers would buy his stock in the company at its fair value. At the end of 2017, Dave James resigned from the trucking company.
Branson Trucking Company is a closely held company that does not trade in any market. The only stock sales have been directly from the company to the original holders of the stock Below are income statements and retained earnings statements for the Branson Trucking Company for the years 2013-2017. The Branson Trucking Company financial statements are prepared by the Black & Blue CPA Group directly from Branson's accounting data. This accounting firm also prepares all of the Branson Trucking Company's tax returns. The financial statements are prepared directly from Branson TrueIcing's accounting data and are not audited by any accounting firm.
Dave James received severance pay of $150,000. He is currently employed in a similar marketing position with another company earning $175,000 a year. During the 2013-2017 time period, the average price eamings ratio for similar trucking firms that were traded in open markets were 8, 12, 15, 11, and 14, respectively, for the five-year period. After Dave James left the company, Branson Trucking's net income for the years 2018 and 2019 was $650,000 and $890,000, respectively. Below is an appraisal report of the Branson Trucking Company's assets as of December 31, 2017. At that time the firm's total liabilities were $5,100,000.
Required: You are hired as a forensic accounting expert to prepare a business valuation. More specifically, you are to determine the fair value of Dave James's 25 percent ownership interest in the Branson Trucking Company at the time of his departure. Prepare the valuation report using the assumption of (a)
a. Assume you have been hired by Dave James to prepare the valuation report.
Additional requirements: Explain the reasoning for applying any premiums or discounts you use in the valuation, and why you used a specific percentage amount. Also, explain why you did not use certain premiums or discounts that other business valuators might use. Discuss limitations, if any, in your report about your valuation of this business.
Attachment:- Business Valuation Resources.zip