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Analyse case study financially - Essay Example

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The main issue to be resolved in the case of the Crowne Inn is to identify the fair transaction to be accepted for the bar to be sold to Bruce Johnston by his mother Barbara Johnston. It is evident that there are three options for Barbara: 1) have Bruce pay a lump sum, 2) have…
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Download file to see previous pages However he purchased the stock from his partner and became the sole owner. In 1994, when Harvey retired, it was agreed that his wife, Barbara will own the business and after her, it would go to Bruce. However, Bruce will be running the business and getting its proceeds and in turn will look after Barbara’s medical expenses, pay for mortgage ($23,500) and pay her $500 every month.
Due to the recent issues raised by Barbara that Bruce had not been paying her properly, Bruce has come up with a contract. The contract indicates that he will make a down payment of $50,000 and then $500 thereafter for the remainder of Barbara’s life. Barbara and family are confused, whether this was a fair offer or not. In order to identify a fair offer, it is essential to understand the reasons behind Bruce pushing this contract to be signed at the earliest.
It is clear that the return on total assets has doubled in one year, indicating that the assets are effectively generating profits for the bar. The return on equity has also doubled, indicating that the payoff on equity is higher (Drury, 2005). This can be main reason behind Bruce wanting to own all of the Crowne Inn, as he will be the sole owner of the company and can claim the entire profits.
It is evident from the above ratios that the Crowne Inn has actively reduced the debt level over the past few years and the debts contribute to lesser than 50% of the assets. The total equity in the company has also risen in the last three years. Based on these ratios, the total debt can be cleared within a period of another 3 years and the whole company will be owned by the equity shareholders. Hence Bruce is very particular about buying the whole company, as he and Sharon only will have the claim to the business’ proceeds (Pendlebury and Groves, 2003).
Barbara gives importance to her relationship with her son; however she is also particular about the oral agreement that Bruce has to take care of her. It is ...Download file to see next pagesRead More
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