Cost of Equity Calculation

Using CAPM, Exhibit 1

Riskfree Rate 4%
Equity Beta 0.85
Risk Premium 7%
Cost of Equity 10%

Cost of debt Calculation

Prime Interest rate+ 5 % 8.25%

WACC
Debt 55%
Equity 45%
Tax Rate 27%

WACC 7.90%
WACC 10%
NPV $3,278,174.00
Selling New Common Stock

Share Price $27.50

No. of new shares 400,000
Total Proceeds $11,000,000.00

Equity in 2011 $17,198,000.00

Total equity after Issuance of shares $28,198,000.00

Total Assets in 2011 after the issuance $70,620,000.00
Equit Multiplier 2.50

Total Interest Bearing Debt in 2011 $37,172,000.00

Debt/Assets 53%
 Consolidated Financial Statement

Assets 06/30/11 06/30/11 Consolidation

Cash $4.102 $0.673 $4.102

Accounts Receivable 16.632 3.609 $16.632
Inventories 11.878 2.360 $11.878
Prepaid Expenses 0.969 0.263 $0.969
Total Current Assets 33.581 6.905 $40.486
Goodwill $8.616
Net Property & Equipment * 22.400 4.424 26.824
Other Long-Term Assets 3.639 0.527 4.166
Total Assets 59.620 11.856 80.092

Liabilities & Owners' Equity 06/30/11 06/30/11

Bank Notes Payable $13.442 $0.902 $14.344

Accounts Payable 3.905 0.931 $4.836
Current Portion of Long-Term Debt 1.483 0.000 $1.483
Accrued Expenses 1.345 0.299 $1.644
Total Current Liabilities 20.175 2.132 $22.307

Long-Term Debt 22.247 0.000 22.247

Total Liabilities 42.422 2.132 44.554

Common Stock 6.881 4.584 20.081

Retained Earnings 10.317 5.140 15.457
Total Shareholder Equity 17.198 9.724 35.538

Total Liabilities & Net Worth 59.620 11.856 80.092

 Goodwill Calculation

Total value of Investment $13,200,000.00

Book Value of stock 4,584,000.00
Goodwill 8,616,000.00

Equity Multiplier 2.253681

Debt/Assets 48%
 Cash flows Projections through acquisition

Income Statement 06/30/11 Year 1 Year 2

Net Sales $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
Terminal Cash Flows

Income tax rate assumed 27% 27%

Yearly Net Working Capital Investment

Additional A/R at 35 Days Sales Outstanding 1.80 0.11

Additional Inventory at 4 Inventory Turns 2.89 0.02
Additional A/P at 30 Days COGS 0.95 0.01
Total NWC Investment -5.64 -0.14

Recovery of NWC

Total Cash Flows 0.773 1.169

Cost of Equity Calculation

Using CAPM,
Riskfree Rate 4%
Equity Beta 0.65 Average of the Industry
Risk Premium 7%
Cost of Equity 9%

Cost of debt Calculation

Prime Interest rate+ 4 % 7.25%

WACC
Debt 22%
Equity 78%
Tax Rate 27%

WACC 8.03%

Discounted Cash Flows $38.96

 With assuption that Bank notes pay
Year 3 Year 4 High Country

Bank Notes Payble 0.902 0.9471 0.994455

$20.92 $21.92 Accounts Payable 0.931151 0.949972 0.95785
12.237 12.824 Accrued Expenses 0.291562 0.311972 0.33069
8.681 9.097
Total Interest Bearing D 0.902 0.9471 0.994455
0.335 0.351 Interest rate 7.25% (Prime Interest rate + 4 %)
6.589 6.905
1.757 1.841 Interest expense 0.065395 0.068665 0.072098

0.076 0.079
1.681 1.762

0.454 0.476
1.227 1.286
41.7524824 Long term Cash flow growth rate in later years=4.8%

27% 27%

0.10 0.10
0.15 0.15
0.05 0.05
-0.29 -0.29

6.36

1.227 49.40

he Industry
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