Microsoft Word peachtree case study
Impact on Valuation Subject
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| 3.3 Impact on Valuation Subject The economy has a direct effect on all businesses the nature of the industry and how the subject business operates tend to modify the net impact on the subject business, many times either intensifying or diminishing the effect. Recall that the Gross Domestic Product (GDP) measures the growth of the economy in broad terms consisting of three major components (1) consumption (primarily measured in terms of disposable income (2) business investment (generally measured by changes in capital expenditures and inventory and (3) government spending. Peachtree Plumbing, Inc. is a small, local, and capital‐intensive business which tends to rely on the changes in the consumption factors for an indication as to the impact on their businesses. More specifically, inflation (generally measured by the Page 52 of 141 CPI) and unemployment trends are more likely to directly impact these businesses. At the national economic level, many signs remain strong. GDP growth is expected to remain positive and inflation is expected remain at or near current levels. The Atlanta metropolitan area has one of the strongest economies of any large market in the United States. Most metrics are strong and forecasts are for that to continue. Tempering enthusiasm would be the trend of rising energy prices and the Federal Reserves increasing of short term interest rates. Peachtree has does not carry much short term debt but the company does borrow money. However, most economic projections are for interest rates to level off and inflation to remain under control (See Table 4). The valuator has not seen any evidence of factors that would disrupt the current consensus forecast of continued economic growth, low inflation and stable employment. The appraiser believes that all economic and industry indicators discussed throughout the previous sections suggest that it will be operationally status quo for the Company. The valuator would expect to see steady (although moderate) growth in the business tempered by competition over the long term with some possibilities to capitalize on the various business trends and opportunities outlined in the previous sections. Given the owner’s continued leadership of the Company into the foreseeable future, the Company’s stable local presence along with the vibrant local economy, and the apparent resiliency exhibited by the industry, the long term expectation in terms of Company growth (defined broadly) is assumed to 3.0%. This section will be referred to as the valuator’s opinion of value is developed throughout the remainder of the valuation report. |