Teresa Gardner has owned and operated Gardner Advertising, Inc., since it began ten years ago. Recently, Gardner mentioned that she
Teresa Gardner has owned and operated Gardner Advertising, Inc., since it began ten years ago. Recently, Gardner mentioned that she would consider selling the company for the right price. Assume that you are interested in buying this business. You obtain its most recent monthly trial balance, which follows. Revenues and expenses vary little from month to month, and June is a typical month. Your investigation reveals that the trial balance does not include the effects of monthly revenues of $4,000 and expenses totaling $1,100. If you were to buy Gardner Advertising, you would hire a manager so you could devote your time to other duties. Assume that your manager would require a monthly salary of $5,000.
1. Assume that the most you would pay for the business is 16 times the amount of monthly net income you could expect to earn from it. Calculate this possible price.
2. Gardner states that the least she will take for the business is two times its stockholders’ equity on June 30. Calculate this amount.
3. Under these conditions, how much should you offer Gardner? Give your reason. (Challenge)
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