Add whoever is missing from our side! Role
: CPA (Sole Practitioner), Business Valuator (working for George to value Twin River) and
Consultant (based on tax advice you will be giving George) Required
:
Determine the value of TR (not expected to consider the qualitative aspects of the purchase) Confirm that George’s business is actually making a positive margin and calculate the breakeven point in bottles to meet the annual profit goal of $100,000 before taxes
Minimize tax liability if George sells personal assets to finance the purchase
Discuss any tax issues affecting Caribou or any tax implications resulting from the proposed purchase
Users:
George Simpson (owner of Caribou): you are working for him, want to get him the best price for Twin and pay lowest tax liability
Twin Rivers: they will most likely review your work as it will be included in purchase proposal George offers them
tension: George wants to pay lowest price possible, Twin’s owner/mgmt would want to sell for highest price possible so bias to overstate annual Hook/Biases
: Since you are working for George, hired by him and valuing a business he is trying to purchase. You need to be aware of the bias of intentionally overstating pre tax earnings for TR in order to drive up the valuation/purchase price. Framework: CCPC, can use ASPE or IFRS Timeline
Today; February 13, 2015
Caribou; December 31, yearend Issues
1.) Purchase of TR; provide purchase price and minimize the tax liability of this purchase.
Breweries generally sell for five to six times annual normalized earnings before taxes.
2.) Determine if CB is actually generating a positive margin and calculate the number of bottles of Caribou Brew needed to sell annually to meet goal of $100,000 pretax annual profits. Secondary issues:
Taxation issues from purchase of TR and from the shareholder learn, also minimize tax liability 2.) Calculating Pretax annual profits
(just a start, feel free to add ondidn’t finish) Contribution Margin for Bottles (612 bottles)
Total cost / bottle = $0.16 (bottle) + $0.01 (label) + $0.14 (FC—machine) = $0.31/ bottle CM (6 bottles) = ($9/6 – 0.31(6 bottles)) = $1.19 for one 6 pack
∙ 40% of sales mix
CM (12 bottles) = ($16/12 – 0.31(12 bottles)) =
$1.02 for one 12 pack
∙ 60% of sales mix Batch Costs (Ingredients) ∙ 1 batch makes 25, 549.. 355ml bottles =
9,069,895 ml (this is the correct #)
Malted Barley = $4,694.4
Yeast = $2,810
Hops = $4,396.8
Water = $3,600
Liquid Glucose = $1,800 Total Ingredient Cost / Batch =
$17,301.2
Total Ingredient Cost / Bottle = 17,301.2 / 25,549 = 0.68 per bottle Current Net Profit
Bad Debt Expense = 0.015s
10,000 = 0.015s
Salaries retail employees (40,000*2)
Salary George
General and Administration Expenses
Net Profit (Loss) Before Tax Desired level =
$100,000 in pretax annual profits
.
