Cermco produces and sells specialty customer relationship management (CRM) solutions to small and medium-size businesses in the United States and Canada. The company is more than 20 years old and has a steady, loyal customer base.

A major reason for Cermco’s success lies in the ability of its product to easily integrate with various accounting and ERP systems. As a result, even when clients upgrade their entire accounting systems to expensive ERP solutions, they continue to use Cermco’s CRM because of its superior features.

Annual revenues for Cermco’s three most recent years are about $11 million (20X3), $7 million (20X4), and $3 million (20X5), respectively. Overall interest expenses and operating margins have remained a relatively constant percentage of revenues.

Cermco attributes the decline in revenues to declines in market share as a result of natural client turnover and the entrance of many other small competing software companies into the market. Nevertheless, Cermco’s CRM product continues to enjoy the highest industry ratings and a loyal customer base.

Cermco’s balance sheets for the most recent three years follow:

Produce a valuation estimate for Ceremco for December 31, 20X5. Use whatever valuation method you think best but justify your choice. Note that you can estimate the annual income from year-to-year changes in the balance sheet.

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CERMCO Balance Sheet December 31 20X5 20X4 20X3 Assets Current assets Cash and cash equivalents $390 $1,386 S2,603 Short-term investments - | | Net receivables 720 664 1,225 Inventory Other current assets | 412 469 892 S1,522 $2,519 1,215 Total current assets $4,720 Long-tem investments Property, plant, and equipment - 76 258 454 Goodwill 545 1,757 1,844 2,194 3,644 Intangible assets Accumulated amortization 999 - | Other assets | Deferred long-tem asset charges Total assets S4,357 $6,378 s11,012 Liabilities Current liabilities Accounts payable Short/Current long-term debt $469 $1,174 S1,436 600 Other current liabilities 1,227 1,358 1,496