EXCEL CASE 1

I have struggled with this question all around but part three when I used the goal see function it comes up with a negative number that I know is not the answer.

On January 1, 2021, Acme Co. is considering purchasing a 40 percent ownership interest in PHC Co., a privately held enterprise, for $700,000. PHC predicts its profit will be $185,000 in 2021, projects a 10 percent annual increase in profits in each of the next four years, and expects to pay a steady annual dividend of $30,000 for the foreseeable future. Because PHC has on its books a patent that is undervalued by $375,000, Acme realizes that it will have an additional amortization expense of $15,000 per year over the next 10 yearsthe patent's estimated remaining useful life. All of PHC's other assets and liabilities have book values that approximate market values. Acme uses the equity method for its investment in PHC.

Required

Using an Excel spreadsheet, set the following values in cells:

Acme's cost of investment in PHC.

Percentage acquired.

First-year PHC reported income.

Projected growth rate in income.

PHC annual dividends.

Annual excess patent amortization.

Referring to the values in (1), prepare the following schedules using columns for the years 2021 through 2025.

Acme's equity in PHC earnings with rows showing these:

Acme's share of PHC reported income.

Amortization expense.

Acme's equity in PHC earnings.

Acme's Investment in PHC balance with rows showing the following:

Beginning balance.

Equity earnings.

Dividends.

Ending balance.

Return on beginning investment balance = Equity earnings/Beginning investment balance in each year.

Given the preceding values, compute the average of the projected returns on beginning investment balances for the first five years of Acme's investment in PHC. What is the maximum Acme can pay for PHC if it wishes to earn at least a 10 percent average return on beginning investment balance? (Hint: Under Excel's Data tab, select What-If Analysis, and the Goal Seek capability to produce a 10 percent average return on beginning investment balance by changing the cell that contains Acme's cost of investment in PHC. Excel's Solver should produce an exact answer while Goal Seek should produce a close approximation. You may need to first add in the Solver capability under Excel's Tools menu.)

1 ACME Cost of investment 700000

Percentages acquired 40%

First year PHC income 185000

Projected Growth 10%

PHC annual dividend 30000

Annual excess amortization 37500

2 2021 2022 2023 2024 2025

PHC

Profits Estimated 185000 203500 223850 246235 270859

Amorttization Adjustments -37500 -37500 -37500 -37500 -37500

Adjusted profits 147500 166000 186350 208735 233359

dividends -30000 -30000 -30000 -30000 -30000

Retained Earings 117500 136000 156350 178735 203359

ACME

Share of reported Earnings 74000 81400 89540 98494 108343.4

Share of Amortization schedule -15000 -15000 -15000 -15000 -15000

Equity in PHC earnings 59000 66400 74540 83494 93343.4

ACME Investments

Beginning Balance 700000 747000 801400 863940 935434

Equity earnings 59000 66400 74540 83494 93343.4

Dividend -12000 -12000 -12000 -12000 -12000

Ending Balance 747000 801400 863940 935434 1016777

Return on beginning investment 8% 9% 9% 10% 10%

3?