BACKGROUND INFO: You are negotiating a deal to purchase a fitness center. You fe

Question

BACKGROUND INFO:

You are negotiating a deal to purchase a fitness center. You feel that the best way to value a firm is using yearly profits. The current owners want $1 million for the center. They let you take a look at their financial information, and you see that they see a pretty steady average of $50,000 per year. Assume a standard interest rate of 6%.

ONLY NEED ANSWER FOR THIS PART:

Now, assume you have the option of buying a different fitness center with the same average profits and interest rate as the one in Problem #8. You have negotiated the price of this firm down to $800,000. Would you be willing to purchase this one?

Explanation / Answer

Annual cash flow and interest rate for different fitness center is same as first fitness center. Buyer can negotiate and able to reduce the purchase price for $1 million to $800,000 then buyer should purchase second fitness center. This is because the cost of investment in second fitness center is less than first fitness center. Only think buyer has to check the risk level and area .

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.