EXERCISE 1-2 Estimating Goodwill and Valuation 107 Alpha Company is considering the purchase of Beta Company. Alpha has collected the fol lowing data about Beta: Total identifiable assets Total liabilities Owners' equity Bea Company Book Values $585,000 320,000 $265,000 Estimated Market Values $750,000 320,000 Cumulative total net cash camnings for the past five years of $850,000 includes extraordinary cash gains of $67,000 and nonrecurring cash losses of $18,000. Alpha Company expects a return on its investment of 15%. Assume that Alpha prefers to use cash earnings rather than accrual-based earnings to estimate its offering price, and that it estimates the total valuation of Beta to be equal to the present value of cash-based carnings (rather than excess earnings) discounted over five years. (Goodwill is then com puted as the amount implied by the excess of the total valuation over the identifiable net as sets valuation.) Required: A. Compute (a) an offering price based on the information above that Alpha might be will ing to pay, and (b) the amount of goodwill included in that price. B. Compute the amount of goodwill actually recorded, assuming the negotiations result in final purchase price of $625,000 cash