Marta Otis is attempting to sell her business to Hubert Betley. The company has assets of…

Marta Otis is attempting to sell her business to Hubert Betley. The company has assets of $1,800,000, liabilities of $1,600,000, and stockholders’ equity of $200,000. Both parties agree that the proper rate of return to expect is 12 percent; however, they differ on other assumptions. Otis believes that the business will generate at least $200,000 per year of cash flows for 20 years. Betley thinks that $160,000 in cash flows per year is more reasonable and that only 10 years in the future should be considered. Using Table 2 in Appendix B, determine the range for negotiation by computing the present value of Otis’s offer to sell and of Betley’s offer to buy.View Solution:
Marta Otis is attempting to sell her business to Hubert

 

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