Student capstone packet — Vanguard Industrial Machining
Fictional case; student version; units USD. The chapter is a worked teaching walkthrough. This packet and learner workbook are the independent construction assessment. Do not consult the solution until submitting your model and recommendation. Source inputs are stipulated, not verified observations about an actual company.
Operating and transaction source packet
| Source assumption | Value |
|---|---|
| Revenue | 4,500,000 |
| Reported EBITDA | 540,000 |
| Book NI | 335,000 |
| Book DA | 150,000 |
| Tax DA | 240,000 |
| Nondeductible | 10,000 |
| Officer pay | 300,000 |
| Replacement pay | 180,000 |
| Personal truck | 24,000 |
| Travel | 12,000 |
| Rent increase | 60,000 |
| Excess repair | 20,000 |
| Inventory correction | 40,000 |
| Opening cash | 200,000 |
| Opening AR | 600,000 |
| Reported inventory | 540,000 |
| Opening prepaid | 40,000 |
| Opening PP&E | 900,000 |
| Opening AP | 350,000 |
| Opening accrual | 150,000 |
| Opening debt | 700,000 |
| Reported equity | 1,080,000 |
| Growth | 0.05 |
| Tax | 0.25 |
| Interest rate | 0.08 |
| Principal payment | 100,000 |
| Distribution | 120,000 |
| Minimum cash | 180,000 |
Correct current-period phantom inventory once in historical earnings and opening equity. Forecast two linked years: DA 160,000/170,000, CapEx 220,000/230,000, growth 5%, interest on opening debt and current cash taxes at the hypothetical buyer rate.
Also run the chapter downside: Year 1 EBITDA lower by 80,000, ending AR higher by 50,000, and cash CapEx higher by 30,000, with no change to current DA, interest, principal or distributions.
Additional source balance data are in the workbook: reported inventory540,000 and equity1,080,000 precede the40,000 correction. The selected filed-tax endpoint to reconcile is255,000, before the later-discovered stock error. Historical S-corporation tax and prospective hypothetical buyer cash-tax conventions are different. Do not invent a corrected filed return.
Required model and written deliverables
Construct every relevant sheet in the learner workbook, with live formulas, visible units, linked supporting schedules and checks. Submit a three-to-five-page memorandum, assumption/evidence register, base case and downside, plus a model-defense note explaining one controlled input change and its consequences. Identify which facts must be verified before a real bid or loan commitment.
Independent grading rubric
| Dimension | Points | Full-credit standard |
|---|---|---|
| Source and assumption reconstruction | 20 | Correct perimeter, periods, units and documented unresolved facts |
| Formula construction and schedule links | 30 | Reproducible equations; no copied solution outputs or plugs |
| Reconciliation and diagnostic checks | 20 | All critical identities demonstrated and failures explained |
| Downside and acquisition judgment | 20 | Coherent stress, funding implications and supported recommendation |
| Communication and evidence | 10 | Reviewable memo, limitations, sources and decision gates |
Pass requires at least 80/100 and all critical checks. An unbalanced opening/forecast balance sheet, cash plug, repeated inventory loss, or undisclosed cash breach is critical. A well-supported recommendation to decline earns full credit; a desired deal outcome is not the grading criterion. Legal, tax and lending judgments require adviser review, not a spreadsheet certificate.