GMAT Practice Question

GMAT Integrated Reasoning  >  Multi-Source Reasoning Question #32: Transaction in cash only  
Time 0 0 : 0 0 : 0 0
Email 1 Email 2 Email 3  
Message from buyer to seller (Bill, co-founder & CEO)
10:07AM
 
Greetings, Bill.
 
As per our last conversation, we'd like to offer our bid at $20M for your internet website business. While this is lower than your stated selling price that we received from our mutual colleague (though not more than 40% lower than your offering price), we believe it can be a fair price taking into account current market conditions and future growth risk.
 
At an 8x revenue multiple (implying annual revenue * 8 = valuation of $20M), this already reflects a premium to many "established" companies - and among profitable internet companies, this is a healthy multiple.
 
Let us know if this is in the ball park range for a deal to be done.
 

The buyer uses "transaction in cash only" primarily to

(A)

give the sellers a more liquid form of payment, in gratitude for all the work they have done thus far.

(B)

deny the buyers the potential upside value of the future company

(C)

introduce a new experienced team that would replace the incumbents during this next stage of growth for the company.

(D)

reward the sellers for the company they have created thus far while denying them a right to have an ownership stake or operational role after the company is acquired.

(E)

explain the importance of the strategic step of replacing existing management.

GMATTM is a registered trademark of the Graduate Management Admission CouncilTM. The Graduate Management Admission CouncilTM does not endorse, nor is it affiliated in any way with the owner or any content of this web site.