Can anyone explain this to me and help me figure it out? Idon't have a clue where to start!
Benjamin O'Henry has owned and operated O'Henry's DataServices since its beginning ten years ago. From all appearances,the business has prospered. In the past few years, you have becomefriends with O'Henry and his wife. Recently, O'Henry mentioned thathe has lost his zest for the business and would consider selling itfor the right price. You are interested in buying this business,and you obtain its most recent monthly unadjusted trial balancewhich follows:
O'Henry's Data Services Unadjusted Trial Balance November30, 20XX
|
| Cash.................................... |
$9,700 |
|
| Accountsreceivable........................... |
7,900 |
|
| Prepaidexpenses............ |
2,600 |
|
| Furniture, fixtures, & equipment |
151,300 |
|
| Accumulated depreciation |
|
$15,600 |
| Accountspayable............ |
|
3,800 |
| Salarypayable.................. |
|
|
| Unearned service revenue |
|
6,700 |
| Benjamin O'Henry, capital |
|
137,400 |
| Benjamin O'Henry, withdrawals |
2,000 |
|
| Servicerevenue............ |
|
14,300 |
| Rentexpense............... |
|
|
| Salary expense............ |
3,400 |
|
| Utilities expense......... |
900 |
|
| Depreciation expense |
|
|
| Supplies expense...... |
|
|
| Total................................................. |
$177,800 |
$177,800 |
Revenues and expenses vary little from month to month, andNovember is a typical month. Your investigation reveals that theunadjusted trial balance does not include the effects of monthlyrevenues of $2,100 and monthly expenses totaling $2,750. If youwere to buy O'Henry's Data Services, you would hire a manager whowould require a monthly salary of $3,000.
The most you would pay for the business is 20 times the monthly net income you could expect to earn from it. Compute this possible price. The least O'Henry will take for the business is his endingcapital. Compute this amount. Under these conditions, how much should you offer O'Henry? Give your reason.