Pacific Grove Spice Company Case Calculations

Cost of Equity Calculation Using CAPM, Riskfree Rate Equity Beta Risk Premium Cost of Equity

Exhibit 1 4% 0.85 7% 10%

Cost of debt Calculation Prime Interest rate+ 5 %

8.25%

WACC Debt Equity Tax Rate WACC

55% 45% 27% 7.90%

WACC NPV

10% $3,278,174.00

Selling New Common Stock Share Price No. of new shares Total Proceeds Equity in 2011 Total equity after Issuance of shares Total Assets in 2011 after the issuance Equit Multiplier Total Interest Bearing Debt in 2011 Debt/Assets

$27.50 400,000 $11,000,000.00 $17,198,000.00 $28,198,000.00 $70,620,000.00 2.50 $37,172,000.00 53%

Consolidated Financial Statement Assets

06/30/11

06/30/11 Consolidation

Cash

$4.102

$0.673

Accounts Receivable

16.632

3.609

Inventories

11.878

2.360

0.969

0.263

33.581

6.905

22.400

4.424

3.639

0.527

59.620

11.856

Prepaid Expenses Total Current Assets Goodwill Net Property & Equipment * Other Long-Term Assets Total Assets

Liabilities & Owners' Equity Bank Notes Payable

06/30/11

$4.102 $16.632 $11.878 $0.969 $40.486 $8.616 26.824 4.166 80.092

06/30/11

$13.442

$0.902

Accounts Payable

3.905

0.931

Current Portion of Long-Term Debt

1.483

0.000

Accrued Expenses

1.345

0.299

20.175

2.132

Long-Term Debt

22.247

0.000

Total Liabilities

42.422

2.132

Common Stock

6.881

4.584

10.317

5.140

Total Shareholder Equity

17.198

9.724

20.081 15.457 35.538

Total Liabilities & Net Worth

59.620

11.856

80.092

Total Current Liabilities

Retained Earnings

$14.344 $4.836 $1.483 $1.644 $22.307 22.247 44.554

Goodwill Calculation Total value of Investment Book Value of stock Goodwill Equity Multiplier Debt/Assets

2.253681 48%

$13,200,000.00 4,584,000.00 8,616,000.00

Cash flows Projections through acquisition Income Statement

06/30/11

Net Sales

Year 1

Year 2

$17.564

$18.79

$19.921

Cost of Goods Sold

11.329

11.558

11.654

Gross Profit Margin

6.235

7.235

8.267

R&D Expense

0.000

0.188

0.319

SG&A Expense

4.359

5.920

6.275

Earnings Before Interest & Taxes

1.876

1.128

1.673

Interest Expense

0.065

0.069

0.072

Earnings Before Income Taxes

1.811

1.059

1.601

Income Taxes

0.489

0.286

0.432

Net Income

1.322

0.773

1.169

27%

27%

1.80

0.11

2.89

0.02

0.95

0.01

-5.64

-0.14

0.773

1.169

Terminal Cash Flows Income tax rate assumed

Yearly Net Working Capital Investment Additional A/R at 35 Days Sales Outstanding Additional Inventory at 4 Inventory Turns Additional A/P at 30 Days COGS Total NWC Investment Recovery of NWC Total Cash Flows

Cost of Equity Calculation Using CAPM, Riskfree Rate Equity Beta Risk Premium Cost of Equity

4% 0.65 Average of the Industry 7% 9%

Cost of debt Calculation Prime Interest rate+ 4 % WACC

7.25%

Debt Equity Tax Rate WACC Discounted Cash Flows

22% 78% 27% 8.03% $38.96

he Industry

With assuption that Bank notes pay Year 3

Year 4

$20.92

$21.92

12.237

12.824

8.681

9.097

0.335

0.351

6.589

6.905

1.757

1.841

0.076

0.079

1.681

1.762

0.454

0.476

1.227

Bank Notes Payble Accounts Payable Accrued Expenses Total Interest Bearing D Interest rate Interest expense

0.902 0.9471 0.994455 0.931151 0.949972 0.95785 0.291562 0.311972 0.33069 0.902 0.9471 0.994455 7.25% (Prime Interest rate + 4 %) 0.065395 0.068665 0.072098

1.286 41.7524824

27%

27%

0.10

0.10

0.15

0.15

0.05

0.05

-0.29

-0.29 6.36

1.227

High Country

49.40

Long term Cash flow growth rate in later years=4.8%

on that Bank notes payable will increase by 5% by keeping in view the past trend 1.044178 1.096387 1.005742 1.054018 0.347225 0.363891

1.044178 1.096387 est rate + 4 %) 0.075703 0.079488