2. How might the working capital, current ratio, and return on sales have affected the offering price? Prepare the necessary calculations before answering.

CASE IN POINT
The Value of a New Business
Anneika Lafferty and her friend Bernie Williams started an Internet business 15 months ago selling affordable musical instruments for beginners. They named it A&B Musical Instruments. Because they live near each other, Bernie keeps the inventory in his garage and Anneika has the computer system, phones, and office space in her home. While the business has done well financially, it requires more time than either expected and affordable instruments for resale are not easy to find. They have decided to try to sell the business and create a different type of online business.

A larger Internet music company wants to buy them but the $50,000 offered is not nearly what Anneika and Bernie expected, based on the company's potential. They quickly reject the offer. The offer is based on last year's balance sheet, shown below, and the income statement, which showed $ 175,000 in sales and $ 110,000 in expenses. Many of the expenditures were to get the business started.

Question

2. How might the working capital, current ratio, and return on sales have affected the offering price? Prepare the necessary calculations before answering.

 
CASE IN POINT
The Value of a New Business
Anneika Lafferty and her friend Bernie Williams started an Internet business 15 months ago selling affordable musical instruments for beginners. They named it A&B Musical Instruments. Because they live near each other, Bernie keeps the inventory in his garage and Anneika has the computer system, phones, and office space in her home. While the business has done well financially, it requires more time than either expected and affordable instruments for resale are not easy to find. They have decided to try to sell the business and create a different type of online business.
 
A larger Internet music company wants to buy them but the $50,000 offered is not nearly what Anneika and Bernie expected, based on the company's potential. They quickly reject the offer. The offer is based on last year's balance sheet, shown below, and the income statement, which showed $ 175,000 in sales and $ 110,000 in expenses. Many of the expenditures were to get the business started.

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