Buyer Valuation

Base Year Sales

Earnout Period, in Years

$ 10,000
5

Sales

Year 1
$

Growth Rate

min
most likely
max

0%
5%
10%

min
most likely
max

0%
5%
10%

Operating Income

Earnout Target
Annual Earnout Value

Year 3

Year 4

$ 11,025

$ 11,576

$ 12,155

5%

Profit Margin

10,500

Year 2

525

5%

5%

$
$

250
275

Present Value of the Earnout,

Discounted at
12%

286

Dollars at Closing

2,000

Valuation of Proposed Total Payment

2,286

551

5%

5%

$
$

500
51

579

750
-

5%

5%

$
$

Year 5

608

5%

5%

$
$

1,000
-

12,763

638
5%

$
$

1,250
-

Note: This exhibit shows the results of one

draw of the simulation. Each time the
model is opened, it recalculates, producing
different numbers from those appearing in
Exhibit 3 of Chapter 22. Please allow for
this in comparing the results of this table
with Exhibit 3.

Distribution for Enterprise Valuation of

Proposed Earnout

0.1
0.08
0.06
0.04
0.02
0

$2
,0
00
$2
,1
32
$2
,2
63
$2
,3
95
$2
,5
26
$2
,6
58
$2
,7
90
$2
,9
21
$3
,0
53
$3
,1
85

PROBABILITY

0.12

Minimum $
Mean
$
Maximum $

2,000
2,414
3,316

Note: The minimum, mean, and maximum

are based on a simulation of 100 draws.
Repeating this simulation, especially with
more draws will likely produce slightly
different estimates. With a very large
number of draws, the estimates should be
reasonably consistent from simulation to

Seller Valuation

Base Year Sales

Earnout Period, in Years

$ 10,000
5

Sales

Year 1
$

Growth Rate

min
most likely
max

10%
15%
20%

min
most likely
max

5%
10%
15%

Operating Income

Earnout Target
Annual Earnout Value

Year 3

Year 4

$ 13,225

$ 15,209

$ 17,490

15%

Profit Margin

11,500

Year 2

1,150

15%

10%

$
$

250
900

Present Value of the Earnout,

Discounted at
12%

2,916

Dollars at Closing

2,000

Valuation of Proposed Total Payment

4,916

1,323

15%

10%

$
$

500
823

1,521

750
771

15%

10%

$
$

Year 5

1,749

15%

10%

$
$

1,000
749

20,114

2,011
10%

$
$

1,250
761

Note: This exhibit shows the results of one

draw of the simulation. Each time the model
is opened, it recalculates, producing
different numbers from those appearing in
Exhibit 4 of Chapter 22. Please allow for
this in comparing the results of this table
with Exhibit 4.

0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0

$2
,8
92
$3
,3
63
$3
,8
35
$4
,3
06
$4
,7
77
$5
,2
49
$5
,7
20
$6
,1
92
$6
,6
63
$7
,1
35

PROBABILITY

Distribution for Enterprise Valuation of

Proposed Earnout
Minimum
Mean
Maximum

$
$
$

2,892
5,484
7,606

Note: The minimum, mean, and maximum

are based on a simulation of 100 draws.
Repeating this simulation, especially with
more draws will likely produce slightly
different estimates. With a very large
number of draws, the estimates should be
reasonably consistent from simulation to