E5.18. Impairment of Goodwill (Hard) A firm made an acquisition at the end of 2008 and recorded the acquisition cost of $428 million on its balance sheet as tangible assets of $349 million and goodwill of $79 million. The firm used a required return of 10 percent as a hurdle rate when evaluating the acquisi- tion and determined that it was paying fair value.

a. What is the projected residual income from the acquisition for 2009?

b. By the end of 2009, the tangible assets from the acquisition had been depreciated to a book value of $301 million. Management ascertained that the acquisition would sub- sequently earn an annual return of only 9 percent on book value at the end of 2009. What is the amount by which goodwill should be impaired under the FASB and IASB requirements for impairment?