Corey Alt has devoted years to developing a profitable business that earns an attractive return. Alt is
Question:
Corey Alt has devoted years to developing a profitable business that earns an attractive return. Alt is now considering selling the business and is attempting to estimate its goodwill. The value of the busi¬ ness’s net assets (excluding goodwill) is $437,000, and in a typical year net income is about $85,000. Most businesses of this type are expected to earn a return of about 10% on their net assets. Estimate the value of this business’s goodwill for the following separate cases assuming it is (1) equal to 10 times the amount that net income is above normal and (2) computed by capitalizing at a rate of 8% the amount that net income is above normal.
Step by Step Answer:
Fundamental Accounting Principles
ISBN: 9780072946604
17th Edition
Authors: Kermit D. Larson, John J Wild, Barbara Chiappetta