Central Circuit Breaker Case Based off the five-year income statements that the current owners offered Ryan to value the company and it’s business, Ryan can ultimately conclude what the company is worth and how much he is willing to pay for it.
The current owners desire a pay out of six times the annual cash flow with the discretionary expenses adjusted. The discretionary expenses they are referring to are CEO salary, facilities rent, and travel. In Ryan’s evaluation of the company he deems these figures to be appropriate for the following discretionary expenses; CEO Salary: $60,000 annual salary, Owner’s Car: ½ of what is currently on the statement, rent: Current market rental rate is $36,000 less per year than what is being charged, and Travel & Entertainment: $3,000 per year. …show more content…
The companies ending cash flow changes drastically in each year; Year 1: $15,000 to $75,750, Year 2: $18,750 to $87,750, Year 3: $3,750 to $42,000, Year 4: $15,000 to $55,500, Year 5: -$12,500 to $49,875. The average of his newly adjusted cash flows, $62,175, and because of the owners request of multiplying it by 6, Ryan now values the business at $373,050. Ryan currently earns $35,000 a year and if he were to purchase Central Circuit Breaker his salary would jump by about $25,000 a year. Taking into account he plans on retiring in 18 years he would earn an additional $450,000 dollars if his salary stays stagnant. However, Ryan plans on mimicking the current owners’ methodology, when nearing retirement raise your yearly salary. Ryan then can receive $50,000 dollars from his current assets and acquire two separate loans of $150,000 with a rate of 6% and $200,000 at 5.6% in order to finance the transaction. These loans do not begin right away, giving Ryan some well needed time to pay back the loan without the rates raising the price way
The current owners desire a pay out of six times the annual cash flow with the discretionary expenses adjusted. The discretionary expenses they are referring to are CEO salary, facilities rent, and travel. In Ryan’s evaluation of the company he deems these figures to be appropriate for the following discretionary expenses; CEO Salary: $60,000 annual salary, Owner’s Car: ½ of what is currently on the statement, rent: Current market rental rate is $36,000 less per year than what is being charged, and Travel & Entertainment: $3,000 per year. …show more content…
The companies ending cash flow changes drastically in each year; Year 1: $15,000 to $75,750, Year 2: $18,750 to $87,750, Year 3: $3,750 to $42,000, Year 4: $15,000 to $55,500, Year 5: -$12,500 to $49,875. The average of his newly adjusted cash flows, $62,175, and because of the owners request of multiplying it by 6, Ryan now values the business at $373,050. Ryan currently earns $35,000 a year and if he were to purchase Central Circuit Breaker his salary would jump by about $25,000 a year. Taking into account he plans on retiring in 18 years he would earn an additional $450,000 dollars if his salary stays stagnant. However, Ryan plans on mimicking the current owners’ methodology, when nearing retirement raise your yearly salary. Ryan then can receive $50,000 dollars from his current assets and acquire two separate loans of $150,000 with a rate of 6% and $200,000 at 5.6% in order to finance the transaction. These loans do not begin right away, giving Ryan some well needed time to pay back the loan without the rates raising the price way