Page 431 - Business Principles and Management

C HAPTER 15 A SSESSMENT

is based on last year’s balance sheet, shown below, and the income state-
ment, which showed $175,000 in sales and $110,000 in expenses. Many
of the expenditures were to get the business started.
A & B Musical Instruments
Balance Sheet
December 31, 20—
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 Liabilities &
Total Assets $79,000 Capital $79,000

THINK CRITICALLY
1. On what basis did the potential buyer probably make the $50,000
offer? What did the buyer learn from the sellers’ rejection?
2. How might the working capital, current ratio, and return on sales
have affected the offering price? Prepare the necessary calculations
before answering.
3. Assume you wish to buy the company. What additional information
would you want to gather from the sellers?

CASE 15-3: Can Consultants Help?
For several years, Delia and Lorenzo Garcia have been making leather
items such as belts, purses, and wallets in their home as a hobby. They have
sold many items to friends and neighbors. Because Lorenzo has just lost his
regular job, he and Delia have decided to go into business full-time making
leather craft items. The items will be sold at fairs, festivals, and flea markets
and hopefully later to retailers. They will need a large amount of money,
some of which they have saved, to expand to a full-time business. Both
agree that they know a great deal about how to make leather items but very
little about financial and other business decisions. Delia believes they should
hire a consultant before they do anything else. Lorenzo, on the other hand,
believes they should go to a bank to obtain the money they need to start the
business. He thinks that they can hire an accountant after they have gotten
the business started. He does not believe the consultant will know enough
about the leather business to give advice. “Besides,” he adds, “consultants
are too expensive.”

THINK CRITICALLY
1. Do you agree with Delia or with Lorenzo about whether they need
a consultant? Explain.
2. How could a consultant help them? How might the bank help them?
3. Could the Small Business Administration be of help? How?

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