Simple Binary-Weighted and R/2R Ladder DAC

A simple 4-bit digital-to-analog converter that is constructed from a digitally controlled switch (74HC4066), a set of binary-weighted resistors, and an operational amplifier. The basic idea is to create an inverting amplifier circuit whose gain is controlled by changing the input resistance Rin. The 74HC4066 and the resistors together act as a digitally controlled Rin that can take on one of 16 possible values. (You can think of the 74HC4066 and resistor combination as a digitally controlled current source. Each new binary code applied to the inputs of the 74HC4066 generates a new discrete current level that is summed by RF to provide a new discrete output voltage level.) We choose scaled resistor values of R, R/2, R/4, and R/8 to give Rin discrete values that are equally spaced. To find all possible values of Rin, we use the formula provided. This formula looks like the old resistors- in-parallel formula, but we must exclude those resistors which are not selected by the digital input code-that’s what the coefficients A through D are for (a coefficient is either 1 or 0, depending on the digital input).

Now, to find the analog output voltage, we simply use Vout = −Vin (RF/Rin)-the expression used for the inverting amplifier shows what we get when we set Vin = −5 V, R = 100 kΩ, and RF = 20 kΩ, and take all possible input codes. The binary-weighted DAC shown above is limited in resolution (4-bit, 16 analog levels). To double the resolution (make an 8-bit DAC), you might think to add another 74HC4066 and R/16, R/32, R/64, and R/128 resistors. In theory, this works; in reality, it doesn’t. The problem with this approach is that when we reach the R/128 resistor, we must find a 0.78125-kΩ resistor, assuming R = 100 kΩ. Assuming we can find or construct an equivalent resistor network for R/128, we’re still in trouble because the tolerances of these resistors will screw things up. This scaled-resistor approach becomes impractical when we deal with resolutions of more than a few bits.

To increase the resolution, we scrap the scaled-resistor network and replace it with an R/2R ladder network-the manufacturers of DAC ICs do this as well. An R/2R DAC uses an R/2R resistor ladder network instead of a scaled-resistor network, as was the case in the previous DAC. The benefit of using the R/2R ladder is that we need only two resistor values, R and 2R. The trick to understanding how the R/2R ladder works is realizing that the current drawn through any one switch is always the same, no matter if it is thrown up or thrown down. If a switch is thrown down, current will flow through the switch into ground (0 V). If a switch is thrown up, current will flow toward virtual ground- located at the op amp’s inverting input (recall that if the non inverting input of an op amp is set to 0 V, the op amp will make the inverting input 0 V, via negative feedback). Once you realize that the current through any given switch is always constant, you can figure that the total current (I) supplied by Vref will be constant as well. Once you’ve got that, you figure out what fractions of the total current passes through each of the branches within the R/2R network using simple circuit analysis.

Establishing the Value of Your Business

Some owners have a figure in mind of what their business is worth; often it’s inflated because of their emotional attachment. On the other hand, many owners undervalue their business because they do not understand the technicalities of the various valuation methodologies and which of these is most appropriate for their specific business type.

Experience has shown that there is also a large percentage of business owners who do not know what their business is worth, nor how to go about establishing its true market value. Link uses many of the established valuation methodologies, often using a range of different options in combination to establish the most accurate figure. This figure is then further scrutinised by comparing the theoretical value with current and historical sales information from the Link database. This ensures that the valuation appraisal accurately represents what a purchaser will pay in the current market.

Profitability and Risk

Most businesses are valued based on a combination of assets and the cash surpluses generated. The risk factor of the specific business is also taken into account. This is the degree of threat from existing or potential competitors, changes in technology or consumer trends and many other factors that may affect earnings or costs.

“Barriers to Entry” is another issue that is taken into account and involves evaluating the degree of difficulty or barriers a competitor may face should they decide to establish a similar business. For example, businesses which require minimal capital investment or technical knowledge are said to have a very low barrier to entry and consequently, may have a lower value.

Most businesses are valued on a “going concern basis” rather than the value of company shares. Purchasers are reluctant to buy company shares for a variety of reasons including the unknown possible future tax, credit or legal liabilities, or the danger of inheriting contingent liabilities based on historical trading. The price of the business is usually made up of three components:

1. Intangible assets.

The future earning potential of the business reflective of historical earnings potentially including intellectual property (IP), right to products or services, benefits of a lease, contracts, techniques and procedures as well as goodwill.

2. Tangible assets.

The fixtures, fittings, plant and equipment used by the business to generate its income. This component is normally calculated according to its depreciated book value.

3. Stock.

Stock purchased by the business for resale or manufacturing purposes. It is valued at the historical cost price. An allowance may be made for old or obsolete stock.

Valuation Methodologies

Generally, two or more of the following methods are used to appraise the value of a business:

1) Industry Ratios

2) Asset Based

3) Earnings Based

4) Market Based

The appraised value is then subjected to the “sanity test”. Some businesses are in a growth industry where their track record is well established and their projections solid. Other businesses may be in what is known as a sunset industry where projections are less optimistic. Many factors affect the true market value of a business, including business sector, economic conditions, business cycles, interest rates, labour availability and a whole host of other influences. Similarly, the value of trademarks, brands, intellectual property and goodwill is not always easy to quantify. Balancing all these factors with the book valuation of businesses establishes the true market value.

1. Industry Ratios

The value of the business is based on its sales record compared with industry averages. This method is often used for small businesses and franchises where there is an established track record within a specific industry. It may also use a formula of multiples of weekly sales or an average derived from sales of similar businesses.

2. Asset Based

In businesses where there is history of low earnings or perhaps even losses, the Asset Based approach is generally used. Using this method, the value of the collective assets (both tangible and intangible) will determine the value of the business. In many cases there will be an element of goodwill payable, even where a business is not trading profitably. Although the assets alone may be purchased on the open market, there is often value in purchasing assets as a going concern, which may include customer lists, relationships with suppliers, an assembled workforce, brand awareness and reputation, among others. Calculating intangible assets, including goodwill requires some subjective judgement coupled with experience and the use of market comparisons.

3. Earnings Based

Generally the earnings based approach is used for larger businesses and places emphasis on earnings rather than assets. There are various methods used when employing the Earnings Based approach to appraisals. Return on Investment (ROI) or capitalisation of earnings is common, as is the application of earnings multiples.

Earnings Based value is determined by considering:

A. The level of return that could be expected by investing in the business in question, taking particular account of the perceived level of risk and realistic costs of management.

B. The “industry average” multiplier on true earnings. This multiplier is market driven and varies according to perceived industry risk factors, perceived earnings sustainability and historical comparisons. The multiplier used most often in this approach is EBIT (Earnings before interest and tax) but others are frequently used and it is critical that you are comparing “apples with apples” when discussing multipliers.

C. The fair market value of the unencumbered tangible assets of the business e.g. plant, fixtures, fittings, equipment, stock and the tangible and intangible assets which may include intellectual property.

EXAMPLE OF ASSETS BASED METHOD

A dry-cleaning business has been breaking even and the owners would like to sell and move on. The business has tangible assets with a total book value of $135,000, $5,000 of stock (all saleable), no bad debts and will pay all creditors. The fair market value of the tangible assets has been assessed as $110,000 and intangible assets and goodwill at $15,000. Therefore the fair market value of this business is calculated as follows: $110,000 (tangible assets) %2B $15,000 (intangible assets and goodwill) %2B $5,000 (stock) = $130,000.

EXAMPLE OF ROI

Tom’s manufacturing company produced an adjusted net profit of $160,000 (EBPITD). The net assets (Valuation of plant and stock) for the business were $240,000 and a fair salary for Tom (owner) is $70,000. If someone was looking to invest in this business they could expect a 25% ROI, as this business offers a low to medium-risk investment opportunity.

To calculate the ROI value for Tom’s business:

Business profits (EBPITD) ………………………$160,000

Minus owner’s salary ………………………………$70,000

Profit ……………………………………………………$90,000

Return on Investment

Profit of …………………………………………………$90,000

Divided by desired return ………………………………..25%

Valuation appraisal ……………………………….. $360,000

4. Market Based

There will be certain instances where no amount of sound theory or application of complicated methodologies alone will suffice. It is not uncommon that a willing buyer and a willing seller will agree on a value that defies all traditional appraisal methodologies. In other cases the use of traditional appraisal approaches produce unrealistic values that have no bearing on market realities. It is important in any appraisal to overlay relevant market data and multiples achieved in similar businesses “in the real world”. Unfortunately the level of information available in Australasia is not as sophisticated as that available in other parts of the world.

How will taxes affect your pay out?

There are tax issues you may need to consider when selling your business. For instance, if you sell the plant and equipment (or company car) for more than the depreciated book value, you may have to pay back some of the tax you claimed when the items were depreciated (depreciation claw-back). Other tax liabilities may be incurred on the profit of land and buildings if they are included in the sale. It is vital that you fully understand your tax position when selling your business, and professional advice should be sought.

“Any desktop valuation involves a substantial amount of subjective judgment. The real test of the value of a business enterprise, like any asset, is what a buyer is prepared to pay.”

Five Ways to Protect Yourself When Selling Your Business

I read with interest a report of April 23, 2008, entitled “Millions involved in local business purchase scam” published in the Christian County Headliner News. As a certified public accountant that has represented buyers/sellers in business sales transactions and also as Managing Partner of Sunbelt Business Advisors – a business brokerage firm, I thought it beneficial to write about the many red-flags that were present in the article. Red flags that others should be aware of and protect themselves against as they attempt to either sell or buy a business.

SMALL BUSINESSES ARE NORMALLY SOLD AS AN ASSET PURCHASE AND NOT A STOCK PURCHASE. This transaction appears to have been a stock purchase and not an asset purchase. This should have been one of the first very large red flags. Small, privately held businesses are almost never sold as a stock purchase. A stock purchase means the current owners legal entity-the company, continues on instead of the new buyer creating a new company. In a stock purchase the new owners get everything the sellers business owns – bank accounts, receivables, any potential and actual liabilities. This includes contingent liabilities the new owner may not even know about. Additionally, a stock purchase does not allow a new owner to get stepped up basis of the company furniture, fixtures and equipment. The stepped up basis of the FF&E could mean thousands of dollars in tax savings to a new owner that would be very beneficial the first few years of ownership. A buyer walking in and immediately wanting to purchase the stock of business and assume all liabilities, potential future liabilities – known or unknown and leaving the additional depreciation on the table is almost unheard of. A normal asset purchase agreement (not a stock purchase) would have generally excluded cash and bank accounts of the prior company. The new owners in an asset purchase agreement, unlike a stock purchase would not have been able to transfer funds from the company accounts. They would need to open new bank accounts in their new company name.

AT CLOSING, BUYERS FUNDS SHOULD BE AVAILABLE. Apparently this deal closed without confirmation or having actual funds from the buyer. No business purchase transaction should close without having funds available and present at closing. This would be the same as selling your house to someone, closing the transaction, but the buyers not having loan approval yet. You wouldn’t do it and neither should sellers of small businesses.

ALWAYS USE A QUALIFIED CLOSING ATTORNEY. The sale of a business should be closed by a qualified closing attorney. Qualified closing attorneys will have their own space and normally not need to use others. A qualified closing attorney will make sure all legal documents are in order; make sure funds are available to pay the seller and file all required legal and IRS documents. Anyone selling or purchasing a business should insist upon having a qualified closing attorney conduct the closing. The absence of a qualified closing attorney should be a red flag.

USE A QUALIFIED BUSINESS BROKER – DON’T TRY IT ALONE. Not using a qualified, professional business broker is another red flag. Can business deals be completed without using a business broker? Certainly! One can also write their own contracts without using an attorney or prepare their own tax return without using a CPA, but it isn’t necessarily the smartest thing to do. Especially when talking about the sale of a business which is probably one of the largest if not the largest asset a person owns. Something as important as this should not be attempted alone. A qualified business broker will help educate the seller as to the process, help establish a valid market price, effectively market the business, screen buyers, and help qualify buyers, assist with negotiations, work with existing seller CPA and attorney, and work with closing attorney and overall management of the process and be there to advise the seller as to red flags!

NEVER CHANGE THE BANK ACCOUNTS UNTIL YOU HAVE YOUR MONEY. Another subtle, but yet red flag is it appears the seller changed the signature cards at the bank(s) and the names of the people allowed access. Even in a stock purchase, the current bank account holder – the seller would have to have the bank change the names and cards. Obviously, if this did in fact happen, it happened prior to the seller having funds from the buyer. The new buyer also apparently had the “keys” to the business before the seller was paid the purchase price. It is like selling your car to someone and agreeing to be paid at some future date; while you watch the “new buyers” that you just met drive off into the sunset with your car. You probably will never see your money or your car.

Most small business stories like your article remain non-public. Just like most financial frauds that occur at small businesses. People do not like to talk about the failures of small business transactions but, they are happening all the time and all across the country. It is very important that sellers and buyers understand the process of selling/buying a business, watch for red flags and use qualified professionals to help them in the process. Doing so will save them money, time and effort and make for a much better business transaction.

A Brief History of Metallica

Metallica have easily been arguably the best, most influential and most respected Heavy Metal band of the 80’s and the 90’s. Instead of drifting off in their own success, they brought the music back down to Earth, back to the street, where it belongs.

The band formed after a series of events in 1981: Lars Ulrich, a Danish born drummer living in the Bay Area of San Francisco, was looking for someone to ‘jam’ with. He put an add in the local Trading Post, ‘The Recycler,’ stating that he was interested in playing drums for a band. To answer his add was James Hetfield, a 19-year-old guitarist, also living in the Bay Area of San Francisco. The two started playing together their favorite Heavy Metal songs, such as those by such bands as Diamond Head, and Black Sabbath. Hetfield later asked roommate (and part-time bassist), Ron McGovney to join the band, and McGovney accepted the offer. The trio then recruited lead guitarist Dave Mustaine, and the band was complete, or was it….

With Hetfield doubling up on vocals, the band recorded their first demos in mid-1981. The demos entitled “No Life ‘Till Leather,” became the product of bootleggers, and the band became popular among the Underground Heavy Metal community.

Later, when Hetfield and Ulrich attended the concert of a fellow Bay Area band called Trauma, they were stunned by the ‘volcanic’ ability of Trauma’s bassist: Cliff Burton. Subsequently, McGovney was kicked out of the band by Hetfield and Ulrich, and the very impressive Burton was asked to join Metallica. After some strenuous decision making, Burton decided to join. Metallica then started to play concerts, mainly as a warm-up band for established Metal acts such as Saxon, and Metallica’s popularity grew, while they hadn’t even released their first album yet.

Mustaine, the band’s lead guitarist became increasingly unpopular with the other three members of the band. His daily intake of drugs and alcohol was not liked by Hetfield and Ulrich, so, in turn, Mustaine was kicked out of the band.

The band searched for another lead guitarist. They attended many concerts of other Bay Area bands, and, they got lucky. They found Kirk Hammet, a guitarist playing for a little known band called Exodus. The trio were in awe of Hammet’s lightning-fast fingers which played intricate minute-long solos, that left the fret board on the guitar smoking after they had finished. Hammet was therefore asked to join the band, and after an age of thinking, Hammet decided to leave Exodus, and join Metallica.

For the next year, Ulrich, Hetfield, Burton and Hammet worked on improving the songs they had written in the No Life ‘Till Leather demos, and wrote new songs, all while performing concerts all over the country. A recording contract was secured with American recording label Elektra, and in 1983, the band released their first album: “Kill ‘Em All.” Kill ‘Em All contained improved songs from the No Life ‘Till Leather demos, and couple of songs written by the band after Burton and Hammet had joined. The album was a huge success amongst the Heavy Metal community, but it never really broke into the mainstream music market.

After the release of Kill ‘Em All, the band decided to cut down on the touring, and decided to work instead, on writing their next album. “Ride the Lightning,” the band’s second album, was released almost exactly a year after Kill ‘Em All. It was the product of a year’s hard work. As with Kill ‘Em All, Ride the Lightning was a success, and it continued in the traditions of the speed-orientated music from the first album.

Metallica’s popularity grew with the release of their album, “Master of Puppets,” released in 1985. Some say that ‘Puppets’ is the best all time Heavy Metal album. It, as with the previous albums was a great success, and Metallica were more popular than ever before.

After the release of ‘Puppets, the band decided to go on a world tour, mainly because on the huge success of their albums. The tour was launched in Copenhagen, Denmark, drummer Ulrich’s home town.

While on tour in Sweden, tragedy struck. Metallica’s tour bus crashed on a long trip between cities, and bassist Burton was tragically killed. After Burton’s funeral, the band wondered if they should continue playing or not, and they decided they would play on….

Auditions were held by Metallica for a new bassist, and many budding bass players turned out to see if they were good enough to join Metallica. Jason Newstead, with his heavy, rhythmic technique on the Bass, was chosen as the new bassist for Metallica. To work Newstead into the Metallica mold, the band decided to go back to their roots, and to play some songs written by their favorite bands, the bands which had influenced them the most in their early career. The cover songs (as they are known), were recorded, and the songs were released in 1986’s $5.95 EP entitled “Garage Days Revisited.” Now the EP is extremely rare, and is considered a collector’s item.

With Newstead on board, 1987’s “….And Justice For All,” was released, Metallica’s fourth album. For the first time, Metallica broke into mainstream music via the album, and it entered the American and British Top 20 in the music charts. From the album, the singles “One,” and “Harvester of Sorrow,” were released, and the singles also had success in the charts.

After the album, the band decided to tour again, and the “Justice” tour, as it came to known, lasted for about 3 years, from 1987 to 1990.

1991’s self-titled album “Metallica,” brought the band their biggest success to date, selling 7 million copies in the USA alone. The album became Number One in the American Music Charts, and the singles “Unforgiven,” “Enter Sandman,” and “Nothing Else Matters,” became huge hits, each entering the Top 10 in both the American and British singles charts.

Then, it was back on the road again for Metallica, for yet another world tour. This time the tour lasted for four years, and the band played in such obscure place in the world such as Moscow.

The Release of 1996’s greatly-anticipated “Load” album was not liked by many of Metallica’s hard-core fans. For Load, Hetfield, Ulrich, Hammet and Newstead had decided to step away from the speed-metal scene, and decided to step into the arena of Alternative Rock. Although the album debuted at number one in the American charts, the older Metallica fans did not take to it greatly, they claimed that Metallica had “sold out.” Metallica lost some fans, but they also gained many more new fans, who were more interested in the Alternative side of Metallica.

For the next year, in between touring, Metallica wrote songs for the next album, not phased buy the comments made by their so called fans on the Load album. Reload, the seventh album, was released in 1997. The album debuted at number four in the American charts, and like the Load album, the older fans did not like it, but the legions of younger fans continued to grow.

Metallica have always been, in their 19 year career, a constant force on music. Metallica have changed the rules for all Heavy Metal bands, not only are they respected by the fans, but also by mainstream record buyers and critics.

Many bands have emerged from the Metallica way of playing music. Kirk Hammet has become one of the most copied guitarists in all forms of music, James Hetfield has developed a signature growl in his vocals, as with his rhythm guitar, while Lars Ulrich’s constant bang of the drums clicks in perfectly with Jason Newstead’s bouncing, yet heavy, bass tunes. Metallica have, single-handedly changed the face of metal, forever.

Illiquid Assets – Donating and Appraising Promissory Notes, A Tax-Efficient Plan

Get a Tax Deduction for Donating a Non-Cash Asset-Promissory Note Donations

Illiquid Financial Asset

A financial asset that is difficult to sell because of its expense, lack of interested buyers, or some other reason is called “illiquid”. Examples of illiquid assets include: Restricted and private stock, LLC and limited partnership interests, deeds and mortgages, promissory notes, mineral rights including oil and gas partnerships, royalties, existing trusts, Insurance policies, and real estate.

Illiquid assets have value and, in many cases, very high value, but are difficult to price and to sell.

The absence of liquidity lowers the value of the asset by the amount of an illiquidity discount. All other things being equal, the more illiquid the asset is, the less value it has. Measuring this discount and applying it in appraisal valuations of illiquid assets has always been a challenge.

A Tax-Efficient Way to Make a Charitable Difference

Many charities welcome contributions of illiquid assets. For the donor it may be an effective and tax-efficient method of giving. The donor is entitled to claim a tax deduction of the fair market value– not just the original cost basis. This tax treatment offers significant benefits at the federal level and frequently at the state and local levels as well.

Donated Property-Key Considerations

Donors should obtain a qualified independent appraisal prior to making a contribution. The IRS requires a donor to obtain a qualified appraisal for illiquid assets no earlier than 60 days before the date of the gift and no later than the due date. It is the Donor’s responsibility to obtain the appraisals, file appropriate tax returns, and defend against any challenges to claims of tax benefits.

Tax consequences are important. The donor should consult a professional tax advisor. The tax benefits of gifting the unusual (illiquid) may be substantial – and could include deducting the full fair market value of the assets, avoiding all capital gains tax, and the ability to carry forward deductions for six years. But, the devil is in the details; it must be done correctly, according to IRS rules.

Establishing “Fair Market Value” for a Promissory Note

“Fair Market Value” is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. For liquid assets trading in active markets, valuations must reflect observable price quotes, recent transactions, or primary issue prices for identical assets.

For illiquid assets, if actual prices cannot be established due to poor liquidity and lack of trading activity, an alternative approach is needed. An appraisal from a qualified appraiser should reflect “Fair Market Values” that approximate actual values from sales in a hypothetical, orderly transaction.

The appraiser must use experienced judgment; that is the key to valuing illiquid assets. There is no mathematical formula, rule-of-thumb calculation, or textbook process; it is a “Judgment Process”. It requires a sound understanding of the promissory note and its potential buyers.

Appraising the asset requires deciding the appropriate yield rate of return applicable to the note being appraised. This decision is based on its individual, unique, risk/return profile. Benchmark yield rates used for comparison should have a close relationship to current and/or historical yields for comparable assets. This means the valuation experts must have expertise and understanding across several disciplines, including trading, quantitative research, credit analysis, and structured finance.

Conclusion

Donating an illiquid asset, such as a private promissory note, can be a tax efficient plan.

The tax deductions for donating a non-cash asset, such as a promissory note, can be very valuable. The devil is in the details; it must be done correctly, according to IRS rules.