Nancy and Arthur were partners in a new printing establishment in a medium-sized community in the Northwest. Each put up $40,000 to launch the firm. Things didnt go terribly well the first year, and the business lost $8,000. This meant that Nancys interest in the business dropped to $36,000 and likewise for Arthur. At this point, Nancy expressed the desire to get out of the business, but Arthur didnt see how he could buy her out because his supply of ready cash was far short of $36,000. Nancy understood but continued to state unequivocally that when the time was right she wanted out.

Despite her stand on withdrawing, Nancy continued to work diligently to make a success of the firm, as did Arthur. The second year resulted in a loss of $2,000, thus reducing each partners interest to $35,000. Nancy became even more determined to dissolve the partnership. During the third year, Nancy and Arthur purchased a state-of-the-art press that would enable them to attract clients whom they had never approached previously. In addition, two competing printing firms in town went out of business. Printing jobs began picking up for Nancy and Arthur, and the future started to look better. Still, Nancy professed a determination to get out of printing. At the end of the third year, Nancy and Arthur each held a $41,000 interest in the businessthanks to a sales boom in the third year.

Arthur was now ready to buy out Nancy, and he said that he could offer her $41,000 in cash for her half of the business. This made sense to Arthur. After all, the accounting records showed Nancys interest at $41,000. Much to his surprise, Nancy replied that she would sell gladlyfor $80,000!

When asked to explain her demand, Nancy said: I can see now that this firm has great potential and massive future earnings. If I sell out for $41,000, I know that someday I will feel like a fool. Id have to tell my friends, Can you believe that Arthurs $2,000,000 business was once half mine, and I sold my half for just $41,000? No, Arthur, I must have $80,000.

If you are so interested in future earnings, Arthur shot back, Then you should stay in the business to receive them! If you get out now, you have no right to those earnings. And it is not right for you to ask me to pay those future earnings to you right now.

1. What is the problem with this partnership?

2. What is Nancys reasoning in asking for $80,000 rather than the $41,000 that her share of the business is presently worth?

3. Would be an equitable settlement of this impasse?