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Benjamin O'Henry has owned and operated O'Henry's Data
Services since its beginning ten years ago. From all
appearances, the business has prospered. In the past few
years, you have become friends with O'Henry and his wife.
Recently, O'Henry mentioned that he has lost his zest for
the business and would consider selling it for the right
price. You are interested in buying this business, and you
obtain its most recent monthly unadjusted trial balance
which follows:
O'Henry's Data Services Unadjusted Trial Balance November
30, 20XX
Cash……………………………… $9,700
Accounts receivable……………………… 7,900
Prepaid expenses………… 2,600
Furniture, fixtures, & equipment 151,300
Accumulated depreciation $15,600
Accounts payable………… 3,800
Salary payable………………
Unearned service revenue 6,700
Benjamin O'Henry, capital 137,400
Benjamin O'Henry, withdrawals 2,000
Service revenue………… 14,300
Rent expense……………
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, and
November is a typical month. Your investigation reveals
that the unadjusted trial balance does not include the
effects of monthly revenues of $2,100 and monthly expenses
totaling $2,750. If you were to buy O'Henry's Data
Services, you would hire a manager who would 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 ending capital. Compute this
amount. Under these conditions, how much should you offer
O'Henry? Give your reason. I have the mathimatical part
ok , please give reasons on how much and why I they would
offer him the amount.
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Answer Posted / louise
First, because they were not included, I added the $2,100 to
the revenue and $2,750 to expenses. After doing this,
O’Henry’s revenue is $16,400 and total expenses are $7,050.
When I subtracted the total expense ($7,050) from the
revenue ($16,400), I discovered that his net income was only
$9,350.
If I were to purchase the business, then I would take on the
same amounts for revenue, but my expense would include an
additional $3,000 for manager’s salary, which would make my
total expenses total $10,050. Subtracting the total expense
($10,050) from the revenue ($16,400) would give me a net
income of only $6,350.
The most I would pay for the business is 20 times the
monthly net income I expect to earn from it. This can be
shown as 20* $6,350, which equals $127,000. However, O’Henry
will take no least than his ending capital ($144,750).
Being that there is a $17,750 difference between what I
would offer and what he would accept, I would talk to Mr.
O'Henry and show him how I got my figures and see if we
could possibly discuss a lower sales price for the business.
I decided to offer him only $135,875 which is what I
originally would offer him plus half of the difference.
| Is This Answer Correct ? | 14 Yes | 9 No |
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