Petersen Cheney Pty Ltd

Petersen Cheney Pty Ltd

Petersen Cheney Pty Ltd was founded in 1988 to manufacture a range of equipment for the mining industry. The company occupies a 2,500 square meter building which it acquired in 1989. The company is owned by Soren Laurensen, its 53-year-old founder.
The company’s equipment is modern, well maintained, and currently underutilised by approximately 55% (it is running at 45% of capacity). The equipment was recently professionally appraised for a fair market value of $4,300,000. The land and buildings were recently professionally valued at $6,700,000. The company owns patents with between 9 and 13 years until expiration on the company’s products.
You wish to buy Petersen Cheney Pty Ltd but only have $600,000 to invest. You are convinced that you have the skills to increase demand for the company’s products to such a point that the plant could be running at capacity within three years. At that point your value creation work will be complete and you will be looking to exit the company. Efficiently operating competitors of Petersen Cheney Pty Ltd have been acquired by large players in recent times. An example includes 62% of the equity of a competitor with revenue of $14,950,000; EBIT of $2,870,000; cash of $70,000; and total interest-bearing debt of $3,300,000 selling for $7,200,000.
Determine the current fair market value of 100% of the equity of Petersen Cheney Pty Ltd.

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