Use the Following Information to Answer the Question(s) Below

question 133

Multiple Choice

Use the following information to answer the question(s) below.
Baubles and Bells, a small business, is up for sale. The book value of its assets is $397,650, and its liabilities have a book value of $148,500. After adjusting for market value, total assets are worth $386,475, and total liabilities are $153,600. The business is considered to be a "normal risk" venture. The new owner (if he buys) plans to draw a salary of $28,000. Estimated earnings for the upcoming year are $88,400. Complete net earnings estimates for the next five years are:
Pessimistic Most Likely Optimistic
Year 1 $82,000 $88,400 $90,500
Year 2 $85,000 $90,000 $93,000
Year 3 $88,000 $92,500 $95,500
Year 4 $91,000 $95,000 $97,000
Year 5 $94,000 $97,000 $98,500
-Using the adjusted balance sheet technique, what is the business worth?

• A) $397,650
• B) $386,475
• C) $249,150
• D) $232,875

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Definitions:

Rent-seeking Activities

Economic actions taken by individuals or groups to earn income by capturing wealth through manipulation or exploitation of the political environment, rather than through productive economic activities.

Political Process

The mechanism through which public decisions are made, encompassing election campaigns, legislative procedures, and public policy formulation.

Economic Prosperity

A state of wealth or good fortune characterized by a high level of income, ample employment opportunities, and strong economic growth.

Congressional Staffers

Individuals who work directly for members of Congress or congressional committees, assisting in legislative and administrative duties.