Mini-Case 7-2: Building Supply

question 101

Essay

Mini-Case 7-2: Building Supply
You have recently decided to purchase a local building supply store. The business has passed the initial screening test and you are ready to begin discussing prices with the present owner. An independent appraisal has calculated the tangible net worth of the business to be $175,000. You determine the rate of return on an investment of similar risk to be 25 percent. You plan to draw a salary of $19,000. Your CPA estimates the net profit of the business (before your salary is deducted) to be $75,000. The present owner has selected a goodwill value of $65,000, and is asking $240,000 for the business.
-Based on the capitalized earnings method, what do you calculate the business to be worth?

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Definitions:

Class-B Rated

A classification referring to the fire resistance and safety standards of electrical insulation or equipment, indicating a medium level of temperature tolerance.

Carbon Dioxide

A colorless, odorless gas produced by burning carbon and organic compounds and by respiration, also used in photosynthesis by plants.

Eye Injuries

Damage or harm caused to the eye or its surrounding structures, which can result from accidents, foreign objects, or exposure to harmful substances or light.

Safety Glasses

Protective eyewear designed to safeguard the wearer's eyes from flying debris, particles, chemical splashes, or potentially harmful light rays.