Please read the story below and answer the 2 questions!

1). If Roy Tyson were to acquire Fabricane, what is the maximum amount that he could pay for the firm, assuming that the acquisition is effective at the beginning of 1993?

2). what value would you recommend as a starting point for negotiations?

please show your work! thank you!

CA SE 36 FABRI CARE IN C VALUATION In early 1986, Roy Tyson purchased Professional Building Maintenance, Inc. (PBM), a building maintenance and cleaning firm located and operating in the Danville, Virginia area. The firm specialized in providing cleaning services in commercial and professional offices, such as banks, law offices, and medical practices. Cver the next 5 years, revenues increased more than 400 percent, from $212,100 to$851A30in1991 (see Exhibit l and2.The revenue growth rate slowed in 1991 as PBM's market share (currently 40 percent in the area. expanded and the potential new prospect pooldeclined. Roy wasconfident that the expertise he had gained whileoperatingPBM could be applied successfully to similar firms in other geographical markets that possessed greater growth potential than Danville. In 1992, he leamed that a building maintenance firm, Fabricare, Inc., end 1991) revenues were less than one-half of those of PBM, but Roy believed the growth potential to be much greater because Fabricare had only a small share (approximately 10 percent of the Lynchburg market. As he looked over the 1991 income statement and balance sheet for Fabricare, Roy was try- ing to decide C) if he should purchase the company and if so, at what price. Fabricare, like PBM, was in the building maintenance business, but approxi- mately one-half of its revenues came from commercial establishment carpet cleaning The owner of Fabricare was approaching retirementage andno prepa ration had been made for management succession in the small firm. On investigation, Roy keamed that Fabricare had about $384000 in revenues in 1991, a figure that had grown only modestly over theprevious three years(Exhibit 3 isa 191 income statement, derived from Fabricare's 191 tax retum. Exibit 4is an unaudited 1991 balane sheet for Fabricare. Fabricare's cument owners were not much on keeping careful records. Past income records were not reliable in Roy's judgment. Hence, the decision regarding acquisition of Fabricare had to be