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Business Valuations: Redmond Pro Printing, Inc. Case Study FAIR MARKET VALUE OF THE STOCKHOLDER’S EQUITY OF REDMOND PRO PRINTING, INC. AS OF OCTOBER 31, 2012 Prepared by: Ahmed Alhadaithi Meghan Greer Jodi Tom 1 CONFIDENTIAL Mr. Redmond, President Redmond Pro Printing, Inc. 339 N. Tampa St. Tampa, FL 33602 Re: Engagement for Business Valuation Services Dear Mr. Redmond, In accordance with your instructions, we have conducted an Valuation analysis for Redmond Pro Printing for the purpose of transferring 90 shares of Mrs. Redmond’s stock to the Florida Conservancy for Cougars (FCC), a 501(c)(3) with headquarters in Tampa, Florida. We will estimate the Fair Market Value of Mrs. Redmond’s 18% business interest of the Company as of October 31, 2012 in order to complete the charitable contribution of her stock. Our report is intended for this specific purpose and is not to be used for any other purpose. We will perform various analytical review procedures of the Company’s financial statements, and perform other procedures we consider necessary to accomplish this purpose. The valuation, to be completed on July 12, 2017, will be based on what we consider the most appropriate method of valuation in the circumstances. We are not required to update this report for events and circumstances occurring after the date of valuation. Based upon the Valuation analysis conducted and detailed in this report, it is our opinion that the fair market value of the shareholder’s equity as of October 31, 2012 is $471,033. This report documents the appraisal procedures followed and the reasoning that supports our analyses, opinions and conclusions based on provided data necessary to complete this study. Respectfully, Alhadaithi, Greer & Tom LLC 2 Purpose of Valuation The valuation is for the purpose of giving shares of Diane’s stock to the Florida Conservancy for Cougars (FCC), a 501(c)(3), with headquarters in Tampa, Florida. This report values 90 shares and 18% interest as of October 31, 2012 and is prepared for Jack and Diane Redmond (shareholders). The standard of value is Fair Market Value (FMV) and the premise of value is going concern. Standard and Premise of Value The standard of value used in this valuation engagement was fair market value. IRS Revenue Ruling 59-60 defines Fair Market Value as: “the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.” Fair Market Value is always determined as of a specific date and is based on all relevant facts and conditions that were known or reasonably anticipated on that date. Going Concern Value is defined as the value of a business enterprise that is expected to continue to operate into the future. It assumes that the company is an ongoing business enterprise with management operating in a reasonable and rational manner with a goal of maximizing shareholder value. 3 Assumptions and Limiting Conditions Alhadaithi, Greer & Tom LLC have been retained by Mr. Jack and Diane Redmond to estimate the fair market value of Redmond Pro Printing, Inc. (“Redmond Pro”) on a marketable, controlling ownership bases as of October 21, 2012 (the “valuation date”). The purpose of this appraisal is solely to provide an independent valuation opinion in order to assist Mr. Jack and Diane Redmond in contributing 90 shares of Diane’s stock to the Florida Conservatory for Cougars (FCC), a 501(c)(3), with headquarters in Tampa, Florida. Our appraisal will be used by the Client in connection with the decision-making process concerning the potential transaction and is consistent with this stated purpose only. The reader of this report should be advised that our appraisal does not constitute a fairness opinion. In addition, this report is not intended to be investment advice and is content should in no way be construed as such. This report is for the exclusive use of the Client. The contents may not be published or otherwise made known to the public, in whole or in part, without the prior written consent of the valuators. This appraisal report relies upon the use of fair market value as the standard of value. For the purposes of this appraisal, fair market value is defined as the expected price at which the subject business would change hands between a willing buyer and a willing seller, neither being under a compulsion to conclude the transaction and both having full knowledge of all the relevant facts. This is essentially identical to the market value basis as it is defined under the International Valuation Standards. The appraisal was performed under the premise of value in continued use as a going concern business enterprise. In our opinion, this premise of value represents the highest and best use of the subject business assets. 4 Appraisal Definitions Key appraisal terms and definitions relevant to this study are noted as follows: The term “Fair Market Value” is defined as the price at which specified property would exchange hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of all relevant facts.¹Such value is always determined as of a specific date and it is based upon consideration of all pertinent facts and conditions that were either known or reasonable anticipated on that date. The term “Business Enterprise” denotes a commercial, industrial, or service organization pursuing an economic activity. There are numerous forms of business enterprises including, most notably, sole proprietorships, partnerships, corporations, and various types of pass-through income tax entities. A business enterprise typically consists of working capital, tangible property, intangibles and other assets associated with a going concern. Alternately, a business enterprise consists of long-term liabilities and equity the combination of which equates to total. The term “Discount Rate” refers to the rate of return that a prudent investor would require in the purchase of an interest in a given company and/or its assets. The rate of return gives consideration to the time value of money and the risks associated with the anticipated benefits to be generated by the investment in the company and/or its assets. In this appraisal, the discount rate has been developed by reference to currently prevailing market rates and yields and by reference to a weighted average cost of capital rationale. The term “Net Cash Flow” (“NCF”), as used herein, is equivalent to the debt-free net income of the subject business enterprise plus non-cash expenditures (i.e., depreciation and amortization) plus cash inflows (e.g., proceeds from the sale of assets) less all cash outflows (i.e., working capital additions, capital expenditures, and any other asset additions.) The term “Majority Interest” describes any number of voting shares/units/interests owned, either directly or indirectly / beneficially, that, when exercised, can influence the selection of a firm’s management, the direction of existing or future operations (i.e. sale, divestiture, merger & acquisition), compensation policies, and the declaration of dividends, among other rights and powers. Typically, this interest constitutes more than 50% of a firm’s total voting stock. As used in this report, the term “Control” or “Controlling Interest” is associated with a majority interest. In general, absolute control of a business enterprise accrues to investors holding 100% of a company’s voting stock. Varying degrees of control insure to the benefit of stockholders owning less than 100% of a company’s voting shares. The term “Marketability” is associated with an ability of an owner to convert a given property or investment into cash quickly, with minimum transaction and other costs in so doing, and with a high degree of certainty of realizing the expected amount of net proceeds. With respect to the investment characteristics of securities, marketability is synonymous with the commonly used term “liquidity”. 5 Qualifications and Certifications Alhadaithi, Greer & Tom LLC is actively engaged in preparing financial analyses of closely held business and in evaluating the securities of such businesses. Over many years in practice, we have prepared numerous business valuations of companies both, large and small, public and private, with operations that are regional, national or international in reach and, that cross numerous industry lines. In addition, we have extensive experience in the appraisal of the key underlying intangible assets of business. Many of our business valuation personnel have extensive experience and educational training to this specialty professional service and fully qualified to opine as to the fair market value of the shareholder’s equity in the Company. Further information to our business valuation services can be found at www.AG&T.com. A Certification Statement and the Professional Qualification of the appraiser(s) involved can be found in this report in Appendices I and II, respectively. The working papers necessary to this valuation study are shown in Appendix III of this report. The Appendices are an integral part of this appraisal study and report and they provide important context to our opinion of fair market value. 6 Scope of Appraisal The scope of this study encompassed such steps and procedures as deemed necessary including, but not limited to the following: Management discussion in order to gain perspective relative to: (i) the nature of the subject business; (ii) the magnitude and character of the markets served; (iii) recent financial trends and conditions; (iv) the overall economic outlook and future operating plans of the Practice; and, (v) other relevant factors associated with the Practice and to an equity investment therein. Consideration of all relevant factors prescribed by the INternal Revenue Service (“IRS”) in Revenue Ruling 59-60 and in other Revenue Rulings that address the valuation of business enterprises, equity interests therein, and/or of the underlying assets of such companies for federal estate, gift, and income taxation purposes. Consideration of all relevant factors prescribed by the Financial Accounting Standards Board (“FASB”) that address the valuation of reporting units and/or of the underlying goodwill and recognizable intangible assets of such entities for financial reporting and GAAP compliance purposes. Research, review, and analysis of, among other things: (i) the history and nature of the Practice; (ii) the recent financial statements (as summarized in Appendix III; (iii) the prospective outlook for the subject business enterprise; (iv) the various schedules and documents as supplied to us and/or as compiled by us from other sources; (v) recent economic, industry, and stock market trends and data; (vi) capital market evidence regarding investment rates of return; and, (vii) various other data having a bearing upon the valuation of the stockholders equity in the company. Consideration of the market, income, and cost approaches in the determination of value for the aggregate stockholders equity of the Business, as further discussed in subsequent sections of this report. In the present context, all valuation approaches were considered, but those not employed were deemed to be irrelevant, not meaningful, and/or otherwise unreliable to indicate value. The development of an appropriate required rate of return, or discount rate applicable to the net cash flow of the Practice used in the determination of value of operating business enterprise. In this appraisal study, the capitalization rate has been developed by reference to a Ibbotson BuildUp Method rationale, as further described subsequently. Application of the market approach based upon certain private merger & acquisition guideline companies, deemed similar to the Practice, indicating a value for the Practice’s total stockholders equity on a non-controlling interest, marketable basis has also been utilized. An analysis of all other relevant facts and data available, resulting in an independent opinion of fair value applicable only within the context of the stated purpose of this appraisal. Based upon the foregoing factors and a study of the data and trends indicated, it is our opinion that the valuation study conducted and presented in this report justifies the appraised fair market 7 value as of October 31, 2012. The scope of our study did not include the valuation of any other specific underlying assets or liabilities of the Practice. Sources of Information For the purpose of this appraisal, we were provided with Redmond Pro Printing, Inc.’s five years financial statements for the year ending October 31, 2008 through 2012. The financial statements provided to us are the responsibility of the Company’s management and we do not express an opinion or any other form of assurance relative to such financial statements. We have accepted these financial statements together with other supporting financial schedules and documentation as a proper representation of actual business condition and operations for the Company. For Valuation purposes, we were also provided with various relevant data and documents that most notably include, but are not limited to the following: (i) various background and descriptive information regarding the Company and its business operation, (ii) other miscellaneous documents/data relative to Redmond Pro Printing, Inc. We have relied upon, without independent verification, the accuracy, completeness and fairness, of ll documentation furnished to us for review and appraisal purposes. As additional resources for this appraisal study, we have referred to various published sources of information. Further, we have reviewed information contained in databases to which we subscribe and/or maintain, websites, and various other trade publications for perspective regarding relevant economic, financial, industry and investment/capital market related trends and not crosschecked such information; nor have we independently confirmed the accuracy, completeness and fairness of such data. 8 Company History and Background Redmond Pro Printing, Inc. is a printing company headquartered in Tampa, Florida that offers a wide range of services, including graphic design, electronic prepress, multi-color offset printing, variable image printing, finishing, and mailing and fulfillment services. Mr. Redmond and a former business partner, Justin Baker, started the company is 1983 as Redmond/Baker Printing. The name of the business was changed to RB Quality Printing Inc. shortly after formation. Jack and Diane Redmond purchased Justin Baker’s interest in the business in 1986. At that time, the Redmonds changed the name to Redmond Pro Printing, Inc. In 1986, when the name changed, Redmond Pro had annual sales of $100,000 and only five employees. Redmond Pro Printing, Inc. now has gross sales of approximately $12 million and employs about 110 people. The employee turnover rate is very low by industry standards, which implies a high degree of employee satisfaction and a relative constant level of printing work. There is an adequate supply of labor in the area when occasional help is needed, and the compensation for these individuals is average for the area. One of the main reasons Redmond Pro was able to grow from gross revenues of $100,000 to gross revenues of $12 million is their workforce. They were able to maintain a high degree of employee satisfaction with a strong team that performed at a level required to be successful. Having a strong workforce allowed Redmond Pro to create a process that ensures efficiency and enhances sales. Shareholder Information: Redmond Pro Printing, Inc. has limited number of shareholders, Jack and Diane Redmond. Jack Redmond is the controlling shareholder and the president, and Diane is the minority shareholder and office manager. Shareholder Number of Shares Percent Jack Redmond 275 55.0% Diane Redmond 225 45.0% TOTAL 500 100.0% 9 Key Management: Name Title Duties Board of Directors: Basis of Compensation Age / Health Jack Redmond Co-Owner; President Overall supervision; management Salary of $10,000 per month 64 / good Diane Redmond Co-Owner; Office Mgr. Staffing, personnel, office supplies Salary of $10,000 per month 60 / good Erick Davidson VP of Finance Head of accounting department Salary, profit sharing 48 / good Kurt Samuelson VP of Production Head of prepress, press & finishing Salary, profit sharing 55 / good Dean Richardson Manager of Prepress Dept. Prepress scheduling & operations 43 / good Sam Erickson Manager of Press Dept. Schedules press runs & operations 50 / poor Tamara Forest Manager of Finishing Dept. In charge of finishing department 35 / good The owners (Jack and Diane) work 100% of the time in the business. Jack Redmond is the president of Redmond Pro and is responsible for managing the overall business, marketing and supervising eight sales reps. Jack has been involved in the industry for over 30 years. Diane is the office manager. She directs all office activities, including staffing and human resources. Erick Davidson, the VP of finance, has a master of accountancy degree and 26 years of experience in accounting and finance. Kurt Samuelson, the VVP of production, has no formal college degree, but completed a professional printer training program and has over 35 years of industry experience. Dean Richardson is the manager of the prepress department. Mr. Richardson has a bachelor of science degree in philosophy and has been with Redmond Pro Printing since graduating in 1990. Sam Erickson is the manager of the press department and has been at the company for 15 years. Mr. Erickson is in poor health and is working reduced hours as he undergoes treatment. Tamara Forest is the manager of the finishing department and has a bachelor degree in graphic design. Ms. Forest has been with the company for seven years. Redmond currently has eight sales reps, all of whom are located in Tampa. In the future, Redmond Pro anticipates that salespeople will be added in other geographic areas. However, no definitive plans for geographic expansion existed as of October 31, 2012. 10 Industry The printing industry has, and continues to, face a decline. According to the IBISWorld Industry Report 32311 Printing in the US(6), industry revenues have decreased on an annual average of 2.5% from 2008 to 2012. The printing industry is highly fragmented with the four largest companies estimated to account for only 10.1% of total industry revenue in 2017. There has been a reduction in the number of printing companies in operation, which is partly due to closures but also has to do with mergers & acquisitions. There are difficulties for this industry in that there is a large amount of capital required, in addition to the change in technology in today’s markets. Pursuant to the valuation date, October 31, 2012, the National Economic Report, July 2012 shares the Macroeconomic outlook. This report demonstrates the absence of both purchaser and federal regulator confidence in future prospects for development. It brings to light other important issues that add to the lack of confidence in the economic development, like rising levels of unemployment, instability in budgetary markets, a government spending shortfall, and stalled domestic production. Regionally, the Southeast has the highest concentration of printing companies. It leads to a highly competitive market and leaves little room for Redmond Pro Printing to expand out of the Tampa Bay Area. The company is centralized in an area that is made up of roughly 2.9 million residents and is teeming with prospects for growth. 11

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harris570
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