Net income figures for Belgian Ltd. are as follows:
2010 ......... $75,000
2011 ......... $53,000
2012 ......... $84,000
2013 ......... $87,000
2014 ......... $69,000
Future income is expected to continue at the average amount of the past five years. The company's identifiable net assets are appraised at $460,000 on December 31, 2014. This business is to be acquired by Mooney Corp. in early 2015. The normal rate of return on net assets for the industry is 7%.
Instructions
What amount should Mooney Corp. pay for goodwill, and for Belgian Ltd. as a whole, if:
(a) Goodwill is equal to average excess earnings capitalized at 23%?
(b) A perpetual18% return is expected on any amount paid for goodwill?
(c) Goodwill is equal to five years of excess earnings?
(d) Goodwill is equal to the present value of five years of excess earnings capitalized at 15%?