Mini-Case 7-2: Building Supply

question 47

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 excess earnings approach, what do you calculate the business to be worth?

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Definitions:

Federal Trade Commission

An independent agency of the United States government aimed at preventing anti-competitive, deceptive, and unfair business practices.

Interstate Commerce

The trade, traffic, or transportation of goods, services, or money across state borders within the United States.

Antitrust Laws

Legislation designed to promote competition and prevent monopolies, oligopolies, and other practices that reduce market competition.

Microsoft

A global technology company known for its software products, including the Windows operating system and the Office suite.