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16 Mar 2023

On what basis did the potential buyer probably make the $50,000 offer? What did the buyer learn from the sellers' rejection?

CASE IN POINT

The Value of a New Business

 

Anneika Lafferty and her friend Bernie Williams started an Internet business 15 months ago selling affordable musical instruments for beginners. They named it A&B Musical Instruments. Because they live near each other, Bernie keeps the inventory in his garage and Anneika has the computer system, phones, and office space in her home. While the business has done well financially, it requires more time than either expected and affordable instruments for resale are not easy to find. They have decided to try to sell the business and create a different type of online business.

 

A larger Internet music company wants to buy them but the $ 50,000 offered is not nearly what Anneika and Bernie expected, based on the company's potential. They quickly reject the offer. The offer is based on last year's balance sheet, shown below, and the income statement, which showed $ 175,000 in sales and $ 110,000 in expenses. Many of the expenditures were to aet the business started.

 

A & B Musical Instruments Balance Sheet December 31, 2022

Assets

Liabilities and Capital

Cash	9,000	Liabilities
Accounts Receivable	8,000	Accounts Payable	31,000
Inventory	37,000
Equipment	25,000	Total Liabilities	31,000
		Capital
		A. Lafferty	24,000
		B. Williams	24,000
Total Assets	79,000	Total Liabilities & Capital	79,000