Accounting

Under these conditions, how much should you offer OHenry Give your reason.

This paper needs to compute the possible price to offer to OHenry which should not exceed 20 times the monthly net income of OHenry while the lowest possible price that OHenry will take is the computed ending capital  of  the latter.    As computed, the monthly net income after making the necessary adjustment for the unadjusted monthly balance is  16,050.00 .  Multiplying the amount with 20 will give the maximum possible price of  321,000.00. However, since a manager will be hired with a monthly salary of 3,000, in lieu of the service of Mr. Benjamin OHenry,  this will reduce the salary of OHenry as posted at 3,400 by  400. Thus after considering the adjustment, the corrected monthly income would be  15,650.00  and multiplying it by 20 would give a total amount of  313,000.00 as new maximum amount.  The latter amount could not be offered to OHenry since the same is too big in comparison to ending capital as computed at  135,400.000.  Thus the first offer should be lower than the computed lowest possible amount of 135,400.00, which is equivalent to the ending capital and assuming Mr. OHenry does not know to correctly compute his monthly income.

If he knows how to compute, the first offer should be 135,400. Subsequent offer could be increased by a certain amount until the offer is accepted but the maximum amount should not exceed the amount of 313,000.00 since the  case  facts say  that  the most amount that could be paid is 20 times the monthly income. See Appendix A.  Thus it could be assumed that if the amount of amount offered will exceed the maximum estimated amount, there would just loss in buying and operating the business of OHenry. Starting from the lowest offer would maximize the profit of the buyer (Meigs, Meigs and Meigs, 1995).