Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Group Case: Keons Limousines Keon has just graduated from college with a business management degree. Through part-time work and trading stocks, he has amassed significant

Group Case: Keons Limousines

Keon has just graduated from college with a business management degree. Through part-time work and trading stocks, he has amassed significant savings which he is considering investing in a small business venture.

Historically, Keon has earned a 9% annual return on his investments, but he realizes that he can't expect the same results with full-time employment or entrepreneurship. He hopes to earn 5.50% a year going forward, should he decide to leave $70,000 invested in a relatively safe investment portfolio. As a result of his trading success, Keon has been offered a job as a junior analyst at a major investment management firm. The job would pay $60,000 to start, with a promotion expected in a year. At that point, the salary would increase to $72,000, followed by steady $2,000 increases annually.

Keon, who has always been interested in limousines, has heard about a unique opportunity to purchase an existing business from a retiring founder. Meena is seeking $200,000 for her business. She owns four limousines, originally purchased for $80,000 each six years ago.

In addition to the vehicles, Keon would get a list of regular customers from Meena. Keon has some experience with valuing goodwill (a common accounting term) and he believes that 60 customers spending an average of $250 per month should be valued at the net present value of the next three years of cashflows. Keon also believes he can increase the rates of these steady customers by 4% a year (first increase immediately) without losing any of their business.

Question: Please kindly give me the answer to the Bold portion.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Data And Analytics In Accounting An Integrated Approach

Authors: Guido Geerts, Ann C. Dzuranin, Margarita Lenk

1st Edition

1119722993, 978-1119722991

More Books

Students also viewed these Accounting questions

Question

Differentiate health psychology from behavioral medicine.

Answered: 1 week ago

Question

Why has Negotiating Women, Inc. focused its attention on women?

Answered: 1 week ago