`

Mr. Need-a-Business is considering buying a business. After exploring a number of options, he seems to be settling on Business-For-Sale Ltd. Mr. Need-a-Business supplied the following information:

Adjusted balance sheet value $200,000

Mr. Need-a-Business annual salary $75,000

Accepted rate of return for the risk 25%

Company net income $147,650

1. Mr. Need-a-Business then asked you to calculate the value of the company using the excess earnings approach. You are asked to include all working, so that Mr. Need-a-Business can reproduce it in the future for other business opportunities. Assume that the net income of the business will increase by 15% over the next year.

2. Mr. Need-a-Business then requested that you used the discounted future earnings approach. The following information was provided based on a consultants projections:

PROJECTED NET INCOME
Year	Pessimistic	Most Likely	Optimistic
XXX1	145,000	150,235	160,400
XXX2	155,320	165,000	170,900
XXX3	161,100	170,120	180,520
XXX4	170,690	180,500	190,000
XXX5	179,200	185,200	195,200

	Yr 1	Yr 2	Yr 3	Yr 4	Yr 5	Yr 6
PVIF (25%)	0.800	0.640	0.512	0.410	0.328	0.262