Jane Winfield would like to buy Ted Garner's company. She has conducted a detailed financial analysis...

Question

Question

Jane Winfield would like to buy Ted Garners company. She has conducted a detailed financial analysis of Teds firm and has d

business accounting

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

A. Adjusted Tangible Assets Valuation :

	Book Value	Fair Value
Inventory	250000	400000
Plant & Equipment	150000	400000
Other Intangibles	30000	60000
Total	430000	860000

Adjusted Tangible Valuation	=Total Fair Value of Tangible Assets	860000

B. Price/Earnings Valuation :

Year 1 Earnings = $200000

Therefore, Year 0 Earnings = 200000/1.24= $161290.3

P/E Valuation = Earnings*P/E Ratio = 161290.3*9 = $1451613

C. Discounted Future Earnings Valuation :

Year	Estimated Earnings	Discounting Factor @ 24%	Present Value
1	200000	0.8065	161290.3
2	300000	0.6504	195109.3
3	400000	0.5245	209794.9
4	500000	0.4230	211486.8
5	600000	0.3411	204664.6
	Total Discounted Future Earnings		982345.9

D. Final Sales Price:

As Jane is the Buyer, the final sales price preferred by Jane would be LOWEST among all valuations i.e. $860000.

Add a comment

Answer 2

Similar Homework Help Questions

Jane Winfield would like to buy Ted Garner's company. She has conducted a detailed financial analysis...

Jane Winfield would like to buy Ted Garner's company. She has conducted a detailed financial analysis of Ted's firm and has determined the following: 1. Book value of the inventory: $250,000 2. Discount rate on future earnings: 24 percent 3. Book value of the plant and equipment: $150,000 4. Fair market value of the inventory: $400,000 5. Fair market value of other intangibles: $60,000 6. Number of shares of common stock: 100,000 7. Fair market value of the plant and...
ACC206: Financial Accounting MCQ 2.0 1. HL Ltd purchased a high speed industrial equipment at a...

ACC206: Financial Accounting MCQ 2.0 1. HL Ltd purchased a high speed industrial equipment at a cost of $420,000. Shipping costs totalled $15,000. Foundation work has to be done to house the equipment at HL Ltd’s premises and costs $8,000. An additional water line had to be run to the equipment at a cost of $3,000. Labour and testing costs totalled $6,000. Materials used up in testing cost $3,000. Under FRS 16 Property, Plant and Equipment , the capitalised cost...
ACC206: Financial Reporting MCQ please help 1. According to FRS 16 Property, Plant and Equipment, gains...

ACC206: Financial Reporting MCQ please help 1. According to FRS 16 Property, Plant and Equipment, gains when selling property, plant and equipment for cash: a. are the excess of the cash proceeds over the fair value of the assets. b. are the excess of the book value of the assets over the cash proceeds. c. are part of cash flows from operations. d. None of the listed options. 2. At the end of its fiscal year, an adverse economic condition...

Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about...

Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta: Total Identifiable assets Total liabilities Owners' equity Beta Company Book Values $631,600 288,700 $342,900 Estimated Market Values $735,800 328,300 Cumulative total net cash earnings for the past five years of $927,700 Includes extraordinary cash gains of $69,800 and nonrecurring cash losses of $44,300. Alpha Company expects a retum on Its Investment of 13%. Assume that Alpha prefers to use cash earnings rather than...
Exercise 1-2 Alpha Company is considering the purchase of Beta Company. Alpha has collected the following...

Exercise 1-2 Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta: Beta Company Estimated Book Values Market Values Total identifiable assets $541,800 $734,700 Total liabilities 317,800 309,500 Owners' equity $224,000 Cumulative total net cash earnings for the past five years of $906,800 includes extraordinary cash gains of $64,800 and nonrecurring cash losses of $46,000. Alpha Company expects a return on its investment of 13%. Assume that Alpha prefers to use cash earnings...
ACC206: Financial Reporting MCQ Please help, urgent!! no need for explanations 1. An exclusive 15-year right...

ACC206: Financial Reporting MCQ Please help, urgent!! no need for explanations 1. An exclusive 15-year right to manufacture a product or use a process is a: a. patent b. copyright c. franchise d. trademark 2. At the end of its fiscal year, an adverse economic condition caused AA Ltd to perform an impairment test for one of its patents, for which it originally paid $66 million for. At the end of the fiscal year, it had accumulated amortisation of $16...

EXERCISE 1-3 Estimated and Actual Goodwill LO 7 Passion Company is trying to decide whether or...

EXERCISE 1-3 Estimated and Actual Goodwill LO 7 Passion Company is trying to decide whether or not to acquire Desiree Inc. The following balance sheet for Desiree Inc. provides information about book values. Estimated market values are also listed, based upon Passion Company's appraisals. Desiree Desiree Inc. Inc. Book Market Values Values Current assets $260,000 $ 260,000 Property, plant & 650,000 equipment (net) _740,000 Total assets $910,000 $1,000,000 Total liabilities $400,000 $ 400,000 Common stock, 160,000 $10 par value Retained...
Exercise 1-3 Passion Company is trying to decide whether or not to acquire Desiree Inc. The...

Exercise 1-3 Passion Company is trying to decide whether or not to acquire Desiree Inc. The following balance sheet for Desiree Inc. provides information about book values. Estimated market values are also listed, based upon Passion Company's appraisals. Desiree Inc. Desiree Inc. Book Values Market Values Current assets $273,900 $273,900 Property, plant & equipment (net) 683,900 799,200 Total assets $957,800 $1,073,100 $438,700 Total liabilities Common stock, $10 par value Retained earnings Total liabilities and equities $438,700 175,600 343,500 $957,800 Passion...
Pina Company has decided to expand its operations. The bookkeeper recently completed the following balance sheet...

Pina Company has decided to expand its operations. The bookkeeper recently completed the following balance sheet in order to obtain additional funds for expansion. $242,000 352,000 413,000 152,000 582,000 172,000 187,000 PINA COMPANY BALANCE SHEET FOR THE YEAR ENDED 2020 Current assets Cash Accounts receivable (net) Inventory (lower-of-average-cost-or-market) Equity investments (marketable)-at cost (fair value $132,000) Property, plant, and equipment Buildings (net) Equipment (net) Land held for future use Intangible assets Goodwill Cash surrender value of life insurance Prepaid expenses Current...

Jane Winfield would like to buy Ted Garner's company. She has conducted a detailed financial analysis...

Homework Answers

Add Answer to:
Jane Winfield would like to buy Ted Garner's company. She has conducted a detailed financial analysis...

Post as a guest

Earn Coins