Would you buy this business?
Distinguish advertised earnings, adjusted earnings, estimated value and buyer cash flow.
Materials: calculator page, paper or this response sheet, and a basic calculator. “Keep for comparison” preserves up to three scenarios while that calculator tab stays open.
Prepare the fictional setup
Click “Load example” in the calculator before starting. The first scenario is fictional and may intentionally show a difficult financial outcome.
Complete setup reference
| price | 450000 |
|---|---|
| revenue | 900000 |
| earnings | 180000 |
| basis | sde |
| unsupported | 15000 |
| labor | 0 |
| reinvestment | 15000 |
| owner Pay | 60000 |
| debt | 0 |
| acquired Cash | 0 |
| annual Debt | 0 |
| down | 20 |
| rate | 10 |
| years | 10 |
| costs | 15000 |
| working Capital | 30000 |
| low | 2 |
| high | 3 |
| decline | 20 |
| target | 1.25 |
| assets | 0 |
Typed responses stay in this tab. Save a PDF to keep your work. Do not enter real household or student financial information.
Warm-up · 5 minutes
If a shop sells $900,000 of goods, does its owner earn $900,000? Explain.
Investigate · 25–40 minutes
Step 1
Load the example business listing and record price, advertised SDE and unsupported add-backs.
Step 2
Calculate adjusted earnings by hand. Multiply by 2 and by 3 to check the estimated range.
Step 3
Keep the scenario, then add $40,000 annual replacement staffing. Compare the cash left for the buyer.
Step 4
Test a 30% earnings decline. List two documents you would request before relying on the listing.
Discuss & reflect · 10 minutes
Why can an asking price fall inside the range and still be unaffordable?
Extension
Set an annual surplus goal after owner income and use the reverse-price tool. Compare the cash-flow ceiling with the valuation range.
Teacher guide and assessment
Expected reasoning
$180,000 minus $15,000 equals $165,000 adjusted SDE. At 2–3×, the illustrative range is $330,000–$495,000 with no transferred debt or excess cash. Replacement staffing reduces available cash by $40,000; the buyer-specific labor assumption does not change the SDE multiple range.
Use the calculator’s breakdown to check rounding. The teacher explanation is tied to the fictional setup above, not to any learner’s edited scenario.
Optional coding extension: send the corresponding fictional JSON example through the API documentation. Compare the response with the browser calculator and explain the calculation-version field.
Quick assessment · 6 points
- 2 points: accurate calculations with units and labeled scenarios.
- 2 points: explains how changing one assumption changes the result.
- 2 points: supports a conclusion with evidence and names a limitation.
Support: work through one scenario together and use a simple table. Challenge: ask the learner to find a counterexample or solve a target by hand. These are flexible suggested grade bands, not a standards-alignment claim.
Methods & sources
Formula explanations, assumptions and source links are on the calculator page. This is an educational activity, not a recommendation to borrow, invest or make a purchase.