Crane Homes Company is considering the acquisition of Novak, Inc. early in 2025. To assess the...

   

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Crane Homes Company is considering the acquisition of Novak, Inc. early in 2025. To assess the amount, it might be willing to pay, Crane Homes makes the following computations and assumptions. A. B. C. Novak, Inc. has identifiable assets with a total fair value of $15,017,000 and liabilities of $8,822,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 75% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Novak, Inc. Novak, Inc.'s pretax incomes for the years 2022 through 2024 were $1,200,800, $1,501,600, and $954,000, respectively. Crane Homes believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments to the following items included in pretax earnings: Depreciation on buildings (each year) Depreciation on equipment (each year) Extraordinary loss (year 2024) Sales commissions (each year) 964,400 53,800 302,700 252,200 The normal rate of return on net assets for the industry is 15%. Crane Homes Company is considering the acquisition of Novak, Inc. early in 2025. To assess the amount, it might be willing to pay, Crane Homes makes the following computations and assumptions. A. B. C. Novak, Inc. has identifiable assets with a total fair value of $15,017,000 and liabilities of $8,822,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 75% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Novak, Inc. Novak, Inc.'s pretax incomes for the years 2022 through 2024 were $1,200,800, $1,501,600, and $954,000, respectively. Crane Homes believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments to the following items included in pretax earnings: Depreciation on buildings (each year) Depreciation on equipment (each year) Extraordinary loss (year 2024) Sales commissions (each year) 964,400 53,800 302,700 252,200 The normal rate of return on net assets for the industry is 15%.

Answer rating: 100% (QA)

To calculate a reasonable offering price for Novak Inc we need to consider its identifiable assets liabilities and earnings potential Lets calculate the offering price and the portion of it that consi... View the full answer