Please read the story and help me answer these two questions! I made sure to give you the charts and any info you might need!

THE TWO QUESTIONS ARE BELOW:

FIRST QUESTION: Daugherty and Rogers believe that their caluation estimate should reflect competitive managerial wages. Do you agree that this adjustment to an EBT (earnings before taxes) estimate should be made? why or why not?

SECOND QUESTION: Suppose Moore insists the value of the business is equal to the estimate obtained under "optimistic" assumptions. Should Thompson buy the restaurant? Suppose he feels an identical restaurant could be established for (equity of) $150,000. How would this affect your answer?

Please show your work! Thank You!

CASE 34 L. A CA FE VALUATION Pat Thompson was stunned by the estimate of his partner, Craig Moore. How can a business," Thompson asked Moore, "with sales of less than $300 thou- sand be worth nearly $5 million?" Moore calmly replied that he had "merely used a formula recommended by experts" to obtain the estimate. For nearly twelve years Moore and Thompson have been owners of the LA Cafe. The restauranthasalways beensucoessful, which isnot surprising given. Moore's extraordinary culinary talents, Thompson's exceptional administrative expertise, and their prior experience as maitre d's at two leading area restaurants. Until six months ago, their relationship was extremely harmonious, the men were equal partnersinboth timeand money. Reantly,however, Moore has been spend- ingless time at the restaurant and generally seems disinterested in the whole busi- ness. Questionedby Thompson, Moore admitted thathehastired of the restaurant and would like to sell his interest,move to New York and workas a maitre d' Thompson likes the idea of being L.A.ssole owner and asked Moore what he thought LA, was worth. Moore's response of $48 million left Thompson shocked, and he became extremely aggravated when Moore refused to divulge the mysterious formula he used to make the estimate "until the time was right." Further discussion lead nowhere until Thompson persuaded Moore to meet with Nathan Rogers, theiraocountant and financial advisor for the last fiveyears. Both trusted Rogers and felt he had good understanding of the restaurant business. THE MEETING WITH ROGERS At their meeting Moore revealed the formula that he had used. He had gone to the library and consulted a leading financial textbook where he found the following equation