The information below relates to the valuation of Michigan full service gasoline service stations.

Zeon Mobile:

Sale Price = $1,100,000

Net Operating Earnings = $700,000

Valuation Ratio = ?

GP Petro

Sale Price = $570,000

Net Operating Earnings = $310,000

Valuation Ratio = ?

a) The operating earnings of Phillips XT service station were $400,000 for the most recent year. Using all of the information above, produce an initial value estimate.

b) Describe concerns a skilled valuation analyst might have about the above estimate of value.

c) Explain how you could address the concerns above and improve your valuation estimate.