Review Decision Case 1 (World.com) on page 186 in chapter 3. By Saturday, April 18, 2015, analyze the data presented in the case scenario and address the following questions in your initial post:
- Assume that 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.
- Nicholas states that the least he will take for the business is an amount equal to the business’s stockholders’ equity balance on January 31. Compute this amount.
- Under these conditions, how much should you offer Nicholas? Give your reason.
Case 1. Lee Nicholas has been the owner and has operated world.com advertisting since its beginning 10 years ago. The company has prospered. Recently, Nicholas mentioned that he would sell the business for the right price.
Assume that you are interested in buying world.com advertisting. you obtain the most recent monthly trial balance, which follows. Revenues and expenses vary little from month to month, and January is a typical month. Your investigation reveals that the trial balance does not include monthly revenues of $3,800 and expenses of $1,100. Also, if you were to buy world.com advertisting, you would hire a manger so you could devote your time to other duties. Assume that this person would require a monthly salary of $5,000.
WORLD.COM ADVERTISTING
Trial Balance
January 31,2012
cash: 9,700 debit
accounts receivable: 14,100 debit
prepaid expenses: 2,600 debit
building: 221,300 debit
accumulated depreciation: 68,600 credit
accounts payable: 13,000 credit
salary payable: 0
unearned service revenue: 56,700 credit
Lee Nicholas Capital: 1110,400 credit
Lee Nicholas Withdrawals: 9,000 debit
service revenue: 12,300 credit
rent expense: 0
salary expense: 3,400
utilities expense: 900
supplies expense: 0
total: 261,000 debit & 261,000 credit
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