Can We Spend Equity?
Your friend Andrew is looking at purchasing a small business and has come to you for help. Andrew thinks he's found a great value in this business, but he wants you to look at the balance sheet and give your opinion.
The business is being sold for $4000.00. Andrew is attracted to this business because the assets are worth more than the purchase price. In addition, Andrew believes that the business is worth the owner's equity plus the assets.
Analyze the balance sheet presented below, and answer the questions that follow.
As at October 31, 1997