Paint Pen

Q-1 What valuation(s) can we place on the business? What method(s) did you use to arrive at the valuation(s)?

Valuation Based on Discounted cash Flow

Discounted Cash Flow Paint Pen Value using this model is $8.17M. The WACC used for discounting cash flows was 16%. We had made the following assumptions about revenues projections which were based on our growth strategy:

* 15% growth rate in FY-1997R

* 17% growth rate in FY-1998E

* 20% growth rate in FY-1999E

* 25% growth rate in FY-2000E

* Gross Margin increases from 37.2% in 1996 to 38 %in 1997 and 1998, from 38% in 1998 t0 39% in 1999 and from 39%in 1999 to 40% in 2000. We expect that the gross margin will improve further in the coming years and target a Gross Margin of 45 %.

* Selling General and Administrative expenses were 20 % for 1996 and 1997 and we anticipate an increased in the Selling General and Administrative Expenses to be 22% of sales in the year 1998,1999 and 2000

* The following income and expenses were expected to remain constant for the period 1996- 2000

* Other operating income $20,000.

* Provision for Income tax - $712,490

* Provision for depreciation - $123,010.

* CAPEX - NIL

* Net Change in Working Capital - 746460

Valuation Based on P/E Multiple

The second valuation technique we used is P/E Multiple. We would value Paint pen at$6,943,040 at a P/ E Multiple of 8x of the earning in the fiscal year 1996($867,880*8)

Liquidation based Value:

We valued Paint Pen at .966