| Course | ACC 345 Financial Statement Analysis/Business Valuation |
|---|---|
| Module | Module 7 |
| Paper type | undergraduate business valuation report using income and market approaches |
| Length | About 1,020 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | BS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 345 Module 7
What the Business Is Worth: A Valuation Report on a Composite Fire Sprinkler Contractor
[Student Name]
Southern New Hampshire University
ACC 345: Financial Statement Analysis and Business Valuation
Project Two
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
What the Business Is Worth: A Valuation Report on a Composite Fire Sprinkler Contractor
The Answer in Brief
On a fair market value, controlling interest basis, the contractor's enterprise value at the valuation date is about $20.6 million, within a reasonable range of $19 million to $22 million. After subtracting interest-bearing debt of $4.8 million and adding cash of $1.9 million, the value of the owners' equity is about $17.7 million. The conclusion weights a discounted cash flow value of $19.7 million and a market value of $21.5 million equally. The service segment, which produces nearly half of gross profit from recurring contracts, supports the value; the slower collections and project estimate risk identified earlier hold it down.
Purpose, Standard and Premise
The valuation is prepared for the owner to evaluate an expected offer from a private equity buyer. The standard is fair market value, the price at which the business would change hands between a hypothetical willing buyer and seller, both informed and neither under compulsion. The premise is a going concern, and the interest valued is 100 percent, a controlling interest, so no discount for lack of control applies.
Normalized Earnings
Latest-year EBITDA was $3,840,000. Adding back the $250,000 by which the owner's salary exceeds what a hired general manager would cost, $90,000 for a family member with no operating role and a $120,000 one-time legal settlement gives normalized EBITDA of $4,300,000 and normalized operating income of $3,520,000, a 9.2 percent margin. Each adjustment is documented in Project One and removes a cost a buyer would not bear.
Income Approach: Discounted Cash Flow
Free cash flow to all capital providers equals normalized operating income after tax, plus depreciation, less capital spending and the increase in working capital. Revenue grows 8 percent in the first year, as forecast in Module Five, slowing to 4 percent by year five. Operating margin is held at the normalized 9.2 percent. Depreciation is 2.1 percent and capital spending 3.3 percent of revenue, and working capital absorbs 15 cents of each additional revenue dollar, reflecting the collection patterns analyzed in Module Three.
Table 1. Free Cash Flow Forecast and Present Value (thousands of dollars)
| Year | Revenue | Operating income | Free cash flow | Discount factor at 14.4% | Present value |
|---|---|---|---|---|---|
| 1 | 41,472 | 3,815 | 1,903 | 0.8741 | 1,664 |
| 2 | 44,375 | 4,083 | 2,094 | 0.7641 | 1,600 |
| 3 | 47,038 | 4,327 | 2,282 | 0.6679 | 1,524 |
| 4 | 49,389 | 4,544 | 2,462 | 0.5838 | 1,438 |
| 5 | 51,365 | 4,726 | 2,631 | 0.5104 | 1,343 |
| Sum of present values | 7,568 |
Beyond year five the model assumes 3 percent growth thereafter, close to long-run nominal growth in the economy: year five free cash flow of $2,631,000 times 1.03, divided by 14.4 percent minus 3 percent, gives $23,776,000, worth $12,134,000 today. Enterprise value from the income approach is $7,568,000 plus $12,134,000, or about $19.7 million. The terminal value makes up 62 percent of the total, typical for a growing business and a reason to examine the growth and rate assumptions closely. Kaplan and Ruback (1995) found that discounted cash flow valuations of highly leveraged transactions came within about 10 percent of actual transaction prices on average, which supports the method's use here while reminding the reader that the estimate carries error.
Market Approach: Multiples
The buyer's three most recent acquisitions of fire protection contractors, provided in the case, closed at 4.6 to 5.8 times adjusted EBITDA, with a median of 5.2. The subject company is somewhat smaller than those targets and has slower collections, but a larger service share, so a multiple of 5.0 is selected. Applied to normalized EBITDA of $4,300,000, the market approach indicates enterprise value of $21.5 million. Liu et al. (2002) found that multiples based on forward earnings and cash flow measures explain prices reasonably well, but that their accuracy depends heavily on choosing truly comparable firms, which is why a small set of transactions in the same trade is preferable to broad public company averages.
Reconciliation and Equity Value
Table 2. Reconciliation
| Approach | Enterprise value | Weight | Weighted value |
|---|---|---|---|
| Income, discounted cash flow | $19.7 million | 50% | $9.85 million |
| Market, 5.0 x adjusted EBITDA | $21.5 million | 50% | $10.75 million |
| Concluded enterprise value | $20.6 million | ||
| Less interest-bearing debt | (4.8 million) | ||
| Plus cash | 1.9 million | ||
| Concluded equity value | $17.7 million |
The two approaches differ by about 9 percent. The discounted cash flow is lower because it explicitly charges for the working capital the business absorbs as it grows, which a multiple of EBITDA does not, while the market multiple reflects what buyers have actually paid for similar platforms. Equal weights reflect comparable confidence in each. Koller et al. (2020) caution that multiples are best used to check a cash flow valuation rather than replace it, and here they do confirm that the result falls within the range buyers pay.
Sensitivity
Value is most sensitive to the discount rate and to working capital. Raising the weighted average cost of capital to 15.4 percent cuts the income approach to about $18.1 million; lowering it to 13.4 percent lifts it to about $21.7 million. A change of 0.5 in the multiple moves the market approach by $2.15 million. If working capital absorbed 20 cents rather than 15 cents of each new revenue dollar, the income approach would fall by about $0.9 million.
Limits of the Conclusion
Three limits apply. The valuation relies on reviewed rather than audited statements, and the contract asset and receivable balances have not been tested in diligence; a material adjustment to either would change normalized earnings and working capital. The market approach rests on three transactions supplied by the buyer, which is a small and not independent sample. And the forecast assumes the owner's relationships with general contractors transfer to the business; if key customers followed the owner into retirement, both approaches would overstate value. A seller who wants the conclusion to hold should address the third limit directly with a transition agreement.
Conclusion
The contractor's enterprise value is about $20.6 million and its equity value about $17.7 million, within a range of roughly $16 million to $19 million for equity. The owner should treat offers near 5 times normalized EBITDA as within fair value, press for credit for the service segment's recurring revenue, and expect the buyer to negotiate working capital and project estimate risk in the purchase agreement.
References
Kaplan, S. N., & Ruback, R. S. (1995). The valuation of cash flow forecasts: An empirical analysis. The Journal of Finance, 50(4), 1059-1093. https://doi.org/10.1111/j.1540-6261.1995.tb04050.x
Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and managing the value of companies (7th ed.). Wiley.
Liu, J., Nissim, D., & Thomas, J. (2002). Equity valuation using multiples. Journal of Accounting Research, 40(1), 135-172. https://doi.org/10.1111/1475-679X.00042
What the ACC 345 Module 7 instructions ask for
Project Two in ACC 345 usually asks you to value a company and present the result in a report. Expect to state the purpose, standard of value and valuation date, normalize historical earnings, forecast cash flows, choose a discount rate, compute a discounted cash flow value with a terminal value, apply at least one market approach using multiples, reconcile the approaches to a conclusion and convert enterprise value to equity value. Many versions also ask for sensitivity analysis and a discussion of discounts or premiums. State every assumption with its basis, and keep enterprise and equity measures separate. The report should read as advice to a named decision maker, with the conclusion up front.
How this ACC 345 Module 7 project two example is built
The report values the contractor at the end of the latest year under a fair market value standard on a going concern, controlling interest basis. Normalized EBITDA is $4.3 million after adding back above-market owner pay, a nonworking family employee and a one-time settlement. The discounted cash flow uses five years of free cash flow, growing from $1.9 million, discounted at 14.4 percent, with a terminal value at 3 percent growth; enterprise value is $19.7 million, with 62 percent from the terminal value. The market approach applies 5.0 times adjusted EBITDA, giving $21.5 million. Weighting them equally gives about $20.6 million. Subtracting $2.9 million of net debt leaves equity value of about $17.7 million.
Where the ACC 345 Module 7 rubric puts the points
Rubrics for ACC 345 Project Two typically score the definition of purpose and standard of value, normalization, the forecast and discount rate, the discounted cash flow mechanics, the market approach, reconciliation, the bridge to equity value, sensitivity and the report's clarity. Top papers support every assumption, separate enterprise value from equity value, explain why approaches differ and how they were weighted, and show which inputs move value most. Graders reward reports written for the decision maker rather than for the instructor. Common deductions include discounting equity cash flows at the weighted average cost of capital, using multiples without a source, ignoring net debt and presenting a single number with no range.
ACC 345 Module 7 help: the mistakes that cost points
Valuation reports most often lose points by mixing enterprise and equity value, using a terminal growth rate near or above the discount rate, applying public company multiples to a small private firm without adjustment and stating a conclusion more precise than the inputs allow. Reports also tend to leave the gap between the two approaches unexplained. If your project values a public company, a minority interest or a business for a different purpose such as divorce or estate planning, the structure holds but the standard of value and discounts change, and we can adapt the report to your case. Present the result as a range around a point estimate.
Get ACC 345 Module 7 written to your instructions
Send the ACC 345 Project Two guidelines, your earlier analysis and the rubric. The report will set the standard of value, normalize earnings, build the income and market approaches, reconcile them and bridge to equity value, with every assumption stated. Turnaround runs about two days, and you pay nothing for the first. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
More ACC 345 papers and related BS Accounting samples
- ACC 345 Module 1 Discussion: Who Reads the Statements, and What They Want
- ACC 345 Module 2 Ratio Analysis Assignment: Three Years of Liquidity, Solvency and Profitability
- ACC 345 Module 3 Cash Flow and Earnings Quality Assignment: Profit Up, Cash Flow Down
- ACC 345 Module 4 Project One: A DuPont Analysis and Performance Report
- ACC 345 Module 5 Forecasting Assignment: Pro Forma Statements for Next Year
- ACC 345 Module 6 Cost of Capital Assignment: A Build-Up Discount Rate for a Private Company
- ACC 345 Module 8 Discussion: Discounts on a Minority Gift
- ACC 311 Module 3 Process Costing Assignment: Equivalent Units on the Moldboard Line
- PSY 365 Module 2 Trait and Behavioral Leadership Analysis
- ACC 317 Module 4 Project One: Five Steps for a Resort Contract Under ASC 606
- ACC 318 Module 3 Lease Accounting Assignment: A Building Lease and an Equipment Lease Under ASC 842
ACC 345 Module 7 questions, answered
Where can I find a free ACC 345 Module 7 Project Two sample?
This page carries a complete ACC 345 Module 7 Project Two valuing a fire sprinkler contractor with DCF and market multiples, reconciled to enterprise and equity value.
What is the difference between enterprise value and equity value?
Enterprise value is the value of the operating business to all capital providers. Equity value is enterprise value less debt plus excess cash.
How is a terminal value calculated?
Often with the growing perpetuity formula: next year's free cash flow divided by the discount rate minus the long-term growth rate, then discounted to the valuation date.
Why normalize earnings before valuing a private company?
To remove costs or income that will not continue under new ownership, such as above-market owner pay, so value reflects the earnings a buyer will actually receive.
How do you reconcile two valuation approaches?
Explain why they differ, weight them according to the reliability of their inputs and the purpose of the valuation, and present the result with a reasonable range.