ACC346 INTERMEDIATE ACCOUNTING IIpurchasecompany

ACC346 INTERMEDIATE ACCOUNTING IIpurchasecompany - Task...

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Unformatted text preview: Task Name: Phase 4 Discussion Board Deliverable Length: 4-5 paragraphs Details: You are the president of Aggressive Venture Capital Company. You have XYZ Corporation's financial statements and are interested in purchasing the company. A rule of thumb for a company's selling price in XYZ's industry is two times net sales as a fair selling price. Using ratio analysis and your accounting acumen, establish a minimum and maximum purchase price that Aggressive should pay for XYZ Corporation. Show your calculations. Be sure to support your position. In your calculations, assume a tax rate of 20%. In your own words, please post a response to the Discussion Board and comment on other postings. You will be graded on the quality of your postings. © Copyright 2006 Colorado Technical University Online. All Rights Reserved. Points Possible: 50 Date Due: Thursday, Sep 27, 2007 Objective: • Apply financial ratio analysis to determine the current financial standing of a firm. • Use effective communication techniques 1 ACC346 INTERMEDIATE ACCOUNTING II ColoradoTechnicalUniversity Okita S. Hamilton 28 September 2007 Phase 4 Task 2 As the president of Aggressive Venture Capital Company, I am now interested in purchasing XYZ Corporation. First and foremost, I will need the company’s financial statements. It is now time to establish a minimum and a maximum purchase price my company would be willing to pay XYZ. For this particular industry, the standard is twice the net sales as a fair selling price. Net sales for the current year total $760,000. Mathematically, we conclude $1,520,000 (760000 * 2), followed by the added tax rate of 20% (1,520,000 * 1.20) for $1,824,000 would be the standard offering price. We know that sales has increased in the last year by 10%. It is important for Aggressive to take into account the debt and turnover ratios. The inventory turnover ratio equaled 1.73. I personally would not be willing to purchase XYZ for 2 times its net sales. The cash to debt ratios as well as the turnover ratio is poor. Another buying alternative would be to make an offer based on XYZ’s minority interest. Let’s briefly look at the Paid in Capital, Par Value of 15%, and other profits. The balance sheet shows $344,000 paid in capital, par value of stock of $8,000 (8000 shares of $1 par value). Based on these calculations >> (($344,000 + $8,000 ) * 15%)= $404,800; we can assume this is not a reasonable selling price either. Because the average market price is $15 we can offer to pay up to $17 assume this is not a reasonable selling price either....
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This note was uploaded on 11/05/2011 for the course ACCOUNTING 101 taught by Professor Online during the Spring '11 term at Colorado Technical University.

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ACC346 INTERMEDIATE ACCOUNTING IIpurchasecompany - Task...

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