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Homework answers / question archive / Lee and Barbara Fletcher own Boos and Roos Antiques and they have decided to sell the business so they can move to Sarasota, FL to be near their son and get away from winter once and for all
Lee and Barbara Fletcher own Boos and Roos Antiques and they have decided to sell the business so they can move to Sarasota, FL to be near their son and get away from winter once and for all. Boos and Roos is located in a small, stand-alone building that it owns. Lee and Barbara originally purchased the building for $275,000 and it is currently appraised at $675,000. The window treatments, furnishings, and display cabinets originally cost $200,000 and are currently valued at $188,700. The current inventory has a balance sheet value of $300,000 and its retail market value is typically 160% of its cost. Mary Ann expects the store to collect 90% of its accounts receivable of $20,000. The business has $16,000 in cash and $44,000 of debt, which will be assumed by the buyer. What is the market value of Boos and Roos ?
The value of the business can be estimated as the current value of its assets minus the current value of its liabilities. The original (or historic) value of the building and fixtures is irrelevant because it is sunk. Only the current market value is relevant. When estimating the current market price of Inventory, however, it would be more appropriate to assume that this inventory can be sold in bulk for its original purchase price of $300,000, rather than for the retail price of 160% of that.
So the market value of this business = 675,000 + 188,700 + 300,000 + 20,000 * 0.2 + 16,000 - $44,000 = $1,139,700.