Cost of Equity Calculation

Using CAPM, Exhibit 1 WACC 10%

Riskfree Rate 4% NPV $3,278,174.00
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%
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 Equity Multiplier
Net Property & Equipment * 22.400 4.424 26.824 Debt/Assets
Other Long-Term Assets 3.639 0.527 4.166 Debt/Equity
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 D 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

2.2536812397
48%
107%

6/30/2012 6/30/2013 6/30/2014 6/30/2015

Equity Multiplier 2.43 2.38 2.29 2.20
Total Debt (Millions) 42.61 46.28 49.02 51.08
Debt as % of Total Assets 51% 49% 48% 46%
Debt as % of Owners Equity 123% 117% 109% 100%

Pacific Grove Spice Company Balance Sheet after acquiring High Country Seasonings
Assets 06/30/12 06/30/13 06/30/14 06/30/15

Cash $5.397 $6.048 $6.668 $7.809

Accounts Receivable 22,988 25,706 28,288 30,653
Inventories 16,502 18,296 20,134 21,818
Prepaid Expenses 1,343 1,501 1,652 1,790
Total Current Assets 46,230 51,551 56,742 62,070

Net Property & Equipment * 29,855 33,407 36,783 39,875

Other Long-Term Assets 5,035 5,629 6,195 6,713
Goodwil; 3,400 3,400 3,400 3,400
Total Assets 84,520 $94 $103 $112

Liabilities + Owners' Equity

Bank Notes Payable $16.792 $18.266 $19.562 $21.181

Accounts Payable 5,426 6,015 6,620 7,173
Current Portion of Long-Term De 1,614 1,751 1,842 1,869
Accrued Expenses 1,857 2,077 2,285 2,477
Total Current Liabilities 25,689 28,110 30,309 32,700

Long-Term Debt 24,204 26,258 27,614 28,028

Total Liabilities 49,893 54,368 57,923 60,728
Common Stock 6,881 6,881 6,881 6,881
New Stock 13,200 13,200 13,200 13,200
Retained Earnings 14,470 19,390 24,890 30,950
Total Shareholder Equity 34,551 39,471 44,971 51,031
Total Liabilities & Net Worth 84 94 103 112
asonings
Income Statement 06/30/12 06/30/13 06/30/14 06/30/15

Net Sales $111.874 $125.103 $137.669 $149.180

Cost of Goods Sold 66,010 73,185 80,536 87,270
Gross Profit Margin 45,864 51,918 57,132 61,910

R&D Expense 1,677 2,002 2,203 2,387

SG&A Expense 34,977 39,407 43,366 46,992
Earnings Before Interest & Taxes 9,210 10,509 11,564 12,531

Interest Expense 3,317 3,657 3,926 4,129

Earnings Before Income Taxes 5,892 6,852 7,638 8,403

Income Taxes 1,591 1,850 2,062 2,269

Net Income 4,301 5,002 5,576 6,134
 Cash flows Projections through acquisition

Income Statement 06/30/11 Year 1 Year 2 Year 3 Year 4

Net Sales $17.564 $18.79 $19.921 $20.92 $21.92

Cost of Goods Sold 11.329 11.558 11.654 12.237 12.824
Gross Profit Margin 6.235 7.235 8.267 8.681 9.097

R&D Expense 0.000 0.188 0.319 0.335 0.351

SG&A Expense 4.359 5.920 6.275 6.589 6.905
Earnings Before Interest & Taxes 1.876 1.128 1.673 1.757 1.841

Interest Expense 0.065 0.069 0.072 0.076 0.079

Earnings Before Income Taxes 1.811 1.059 1.601 1.681 1.762

Income Taxes 0.489 0.286 0.432 0.454 0.476

Net Income 1.322 0.773 1.169 1.227 1.286
Terminal Cash Flows 41.75248

Income tax rate assumed 27% 27% 27% 27%

Yearly Net Working Capital Investment

Additional A/R at 35 Days Sales Outstanding 1.80 0.11 0.10 0.10

Additional Inventory at 4 Inventory Turns 2.89 0.02 0.15 0.15
Additional A/P at 30 Days COGS 0.95 0.01 0.05 0.05
Total NWC Investment -5.64 -0.14 -0.29 -0.29

Recovery of NWC 6.36

Total Cash Flows 0.773 1.169 1.227 49.40

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 payable will increase by 5% by keeping in view the past t
High Country
Bank Notes Payble 0.902 0.9471 0.994455 1.04417775 1.096386638
Accounts Payable 0.931150685 0.949971797 0.957849612 1.005742093 1.054017713
Accrued Expenses 0.2915624 0.311971768 0.330690074 0.347224578 0.363891358

Total Interest Bearing D 0.902 0.9471 0.994455 1.04417775 1.096386638

Interest rate 7.25% (Prime Interest rate + 4 %)

Interest expense 0.065395 0.06866475 0.072097988 0.075702887 0.079488031

Long term Cash flow growth rate in later years=4.8%

5% by keeping in view the past trend
 6/30.2012 6/30.2013 6/30.2014 6/30.2015
Equity Multiplier 2.51 2.45 2.36 2.25
Total debt Millions 42.72 46.96 50.32 52.48
Debt as % of Total Assets 52% 51% 50% 48%
Debt as % of Owners 131% 125% 117% 107%

Income Statement 06/30/12 06/30/13 06/30/14 06/30/15

Net Sales 101.18 113.69 125.68 136.64

Cost of Goods Sold 59.19 66.51 73.52 79.93

Gross Profit Margin 41.99 47.18 52.16 56.70

R&D Expense 1.49 1.68 1.87 2.04

SG&A Expense 30.08 33.93 37.62 40.97

Promotion Expense at 11% of 0.89 0.94 0.98 1.03
Depreciation Expense 0.29 0.29 0.29 0.29

Earnings Before Interest & T 9.24 10.34 11.40 12.37

Interest Expense 3.24 3.59 3.90 4.13

Earnings Before Income Tax 6.00 6.75 7.50 8.25

Income Tax 1.62 1.82 2.02 2.23

4.38 4.93 5.47 6.02
Net Income
 Changes in Pacific Grove Spice Company’s Balance Sheet due to sponsoring the TV show
Assets 06/30/12 06/30/13 06/30/14 06/30/15

Cash $15.973 $16.595 $17.193 $17.737

Accounts Receivable 20,791 23,360 25,825 28,076
Inventories 14,798 16,627 18,381 19,983
Prepaid Expenses 1,214 1,364 1,508 1,640
Total Current Assets 52,776 57,947 62,907 67,435

Net Property & Equipment * 24,507 28,757 32,864 36,735

Other Long-Term Assets 4,553 5,116 5,656 6,149
Total Assets 81,836 91,819 101,426 110,319

Liabilities & Owners' Equity 06/30/12 06/30/13 06/30/14 06/30/15

Bank Notes Payable 16,840 18,922 20,918 22,741
Accounts Payable $4.865 $5.466 $6.043 $6.570
Current Portion of Long-Term De 1,618 1,753 1,838 1,860
Accrued Expenses 1,680 1,887 2,086 2,268
Total Current Liabilities 25,003 28,029 30,886 33,439

Long-Term Debt 24,258 26,286 27,561 27,879

Total Liabilities 49,261 54,315 58,447 61,318

Common Stock 6,881 6,881 6,881 6,881

New Stock Issue ( MV of new sto 2,362 2,362 2,362 2,362
Premium on stock ( BV of stock) 8,638 8,638 8,638 8,638
Retained Earnings 14,696 19,625 25,099 31,120
Total Shareholder Equity 32,578 37,507 42,981 49,001

Total Liabilities & Net Worth 81,839 91,821 101,428 110,319