Question

Assume that today is January 1, 2021. Assume that you are a management consultant. One of...

Assume that today is January 1, 2021. Assume that you are a management consultant. One of your clients comes to you for advice. Your client has the opportunity to buy a small business, sports Store. The purchase must be made today. What do you think the business is worth given the projected financial statements? The lease on the building that houses the business will expire on December 31, 2023 at 11:59 p.m. It cannot be renewed. In other words, the business only has a life of 3 years. All assets will be sold on December 31, 2023. Assume that investments of like risk are giving a 10% return every year.

SEE BALANCE SHEET BELOW:


Sports Store
Balance Sheet
as of December 31


ASSETS                   2020       2021       2022       2023
______________________________________________________________________________


Current Assets
Cash               $   50       150       250       0
Accounts Receivable           100       100       100       0
Inventory               150       250       250       0
---------------------------------------------------------------  
TOTAL           300       500       600       0


Fixed Assets                  
Net Plant and Equipment       2000       1900       1800       0
--------------------------------------------------------------

TOTAL ASSETS               2300       2400       2400       0
      
      


LIABILITIES AND EQUITY
______________________________________________________________________________

Current Liabilities
Accounts payable           100       100       100       0
Notes payable               200       200       200       0
-------------------------------------------------------------
Total               300       300       300       0

  
Long-term debt               0       0       0       0


Stockholders' Equity
Common Stock and Paid-in Surplus   100       100       100       0
Retained Earnings           1900       2000       2000       0
---------------------------------------------------------------
Total Stockholder’s Eq   2000       2100       2100       0


TOTAL LIABILITIES & EQ           2300       2400       2400       0  
      
      


  

Sports Store
INCOME STATEMENT
as of December 31


                   2021           2022           2023

Net Sales               1,000           2,000           3,000
Cost-of-goods sold           600           1200           1500
Depreciation               100           100           100

                   ------           ------           -----
Earnings before interest and taxes   300           700           1400

Interest                   0           0           0
------           ------           -------
Taxable Income           300           700           1400          

Taxes                   50           200           300
---------           -------           ------

Net Income               250           500           1100


Retained Earnings           100           0           0  


Dividends               150           500           3100


Homework Answers

Answer #1

Answer:

According to the given data
The business lifespsn is 3 years whichnis short
So, we have to do the estimate based on dividend payments.
So, Dividend at
end of 1st year ==> 150
end of 2nd year ==> 500
end of 3rd year ==> 3100
Assume that, Giving a 10% return every year
So, now lets calculate the value of such type of business, then
==> (1st Year end Divident/0.1)+(2st Year end Divident/(0.1)^2)+(3st Year end Divident/(0.1)^3)
==> (150/1.1)+500/(1.1)^2)+(3100/(1.1)^3)
==> 136.3636+413.2231+2329.0759
==> 2,878.6626
The PV of investment is ==> $2,878.66
So, I think that , this is the worth of business.

-------------------------------------------------------------------------------------------

Please Encourage us by Up Voting the Answer which is Very Helpful to us. Thank You!

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that today is January 1, 2021. Assume that you are a management consultant. One of...
Assume that today is January 1, 2021. Assume that you are a management consultant. One of your clients comes to you for advice. Your client has the opportunity to buy a small business, Finance Experts’ Fine Food Store. The purchase must be made today. What do you think the business is worth given the projected financial statements? The lease on the building that houses the business will expire on December 31, 2023 at 11:59 p.m. It cannot be renewed. In...
Assume that today is January 1, 2021. Assume that you are a management consultant. One of...
Assume that today is January 1, 2021. Assume that you are a management consultant. One of your clients comes to you for advice. Your client has the opportunity to buy a small business. The purchase must be made today. What do you think the business is worth given the projected financial statements? The lease on the building that houses the business will expire on December 31, 2023 at 11:59 p.m. It cannot be renewed. In other words, the business only...
The client had the following intake and output during your shift: 1900 1 can of soda...
The client had the following intake and output during your shift: 1900 1 can of soda (12 ounces) 1 slice of cheese pizza 1 piece of cheesecake (4 ounces) Emptied 200 mL from Foley catheter 4 ounces of fruit salad 4 ounces of mixed vegetables 2000 1 can of soda (12 ounces) 2000–2100 100 mL/hour normal saline 2100 Emptied 150 mL from Foley catheter 2300 50 mL free water flush 0000 Emptied 750 mL from Foley catheter 0000–0200 2 packs...
Balance Sheet Year 1 Year 2 Change Cash         100           70          (30) Accts Receivable...
Balance Sheet Year 1 Year 2 Change Cash         100           70          (30) Accts Receivable         500         800         300 Inventory         800         700        (100)    Current Assets      1,400      1,570         170 Gross Fixed Assets      2,500      2,800         300 Accum Depreciation        (500)        (700)        (200)    Net Fixed Assets      2,000      2,100         100 Total Assets      3,400      3,670         270 Accts Payable         300         150       ...
On January 1, 2021, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong...
On January 1, 2021, Pride, Inc. acquired 80% of the outstanding voting common stock of Strong Corp. for $364,000. There is no active market for Strong’s stock. Of this payment, $28,000 was allocated to equipment (with a five-year life) that had been undervalued on Strong's books by $35,000. Any remaining excess was attributable to goodwill, which has not been impaired. As of December 31, 2021, before preparing the consolidated worksheet, the financial statements appeared as follows: Pride, Inc. Strong Corp....
Rainbow Beauty Goods just provided the following balance sheet and income statement items. Assume that the...
Rainbow Beauty Goods just provided the following balance sheet and income statement items. Assume that the stock price is $10 per share. All data are in thousands of dollars. Net income                                                                             400 Net plant and equipment                                                        2500 Notes payable                                                                         300 Accounts Payable                                                                   500 Accounts Receivable                                                              600 Addition to retained earnings                                                 250 Cash and equivalents                                                              200 Common stock                                                                       100 Cost of goods sold                                                                  3700 Depreciation                                                                           300 Dividends on common shares                                                150 Gross...
1. Morris Corporation began operations on January 1, 2021. The firm was authorized to issue 600,000...
1. Morris Corporation began operations on January 1, 2021. The firm was authorized to issue 600,000 shares of $1 par common stock. During 2021, Morris had the following transactions relating to shareholders’ equity: January 1, issued 8,000 shares of common stock at $9 per share July 9, issued 18,000 shares of common stock at $10 per share Net income for the year was $110,000. Dividends paid was $30,000. Treasury shares purchased: 6,000 shares at $11 each (these shares were part...
Presented below are the 2020 Income Statement and Balance Sheet for Riggins Online Store. Prepare a...
Presented below are the 2020 Income Statement and Balance Sheet for Riggins Online Store. Prepare a Cash Flow Statement as of December 31, 2020. Additional Information for the 2020 fiscal year includes: 1) Cash dividends of $1,000 were declared and paid. 2) Equipment with a cost of $1,500 and accumulated depreciation of $1,000 was sold for $500. Riggins Online Store Income Statement For the Year Ended December 31, 2020 Sales Revenue $ 14,250 Service Revenue       3,400 Total Revenue $...
The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021,...
The financial statements for Campbell, Inc., and Newton Company for the year ended December 31, 2021, prior to the business combination whereby Campbell acquired Newton, are as follows (in thousands): Campbell Newton Revenues $ 2,600 $ 700 Expenses 1,880 400 Net income $ 720 $ 300 Retained earnings, 1/1 $ 2,400 $ 500 Net income 720 300 Dividends (270 ) 0 Retained earning, 12/31 $ 2,850 $ 800 Cash $ 240 $ 230 Receivables and inventory 1,200 360 Buildings (net)...
The following information pertains to the next three questions. At the beginning of 2012, X Company...
The following information pertains to the next three questions. At the beginning of 2012, X Company had assets of $300, liabilities of $150, and common stock of $50. During 2012 the company earned revenue of $400, incrued expenses of $250, and paid dividends of $100. All tansactions were cash transactions. 21. The amount of net income reported on X company's December 31, 2012 income statement would be A. $400 B. $150 C. $50 D. none of the above 22. The...