Business
a) Define the term due diligence. How is it applied to the acquisition of new venture?
According to the class textbook, due diligence is defined as a thorough analysis of every facet of an existing business. Due diligence is applied in the acquisition of the new venture in many ways. First, it is through the use of the due diligence that an entrepreneur will be able to evaluate the viability of the venture to be bought on various feasibility scales. Through due diligence, an entrepreneur is able to understand the current business situation and if there is any need to buy another venture or not depending on the market demands.
b) Describe how adjusted tangible book value method works
The adjusted tangible book value is the traditional way of calculating the value of a business. It is the total market value of all the current and long-term assets less liabilities. Valuing the business takes a series of steps. First, the person calculating the value must have the adjusted tangible value of the business. This is calculated by adding all the current and long-term assets minus the liabilities. The next step is to calculate through estimation the annual earning of a buyer. The third step should include the calculation of the net earnings and the extra earnings of the business. The final value will be used to value the business in comparison with another.
c) Explain why the following are important in valuing a business
Avoiding the startup cost in valuing a business might lead to an overrating a business since some entrepreneurs are always willing to pay much for an existing enterprise. There while valuing a business, it is important to define the startup cost and to evaluate the already established clientele.
Accuracy of projections
The degree of control
Also known as the control factor, determines the range of ownership the entrepreneur have over a firm. The valuation of the business will thus be determined according to the percentage and authority the owner have over it.
