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Oriole Company is considering the acquisition of Sheffield, Inc. To assess the amount it might be willing to pay, Oriole makes the following computations and
Oriole Company is considering the acquisition of Sheffield, Inc. To assess the amount it might be willing to pay, Oriole makes the following computations and assumptions. A Sheffield Inc. has identifiable assets with a total fair value of $ and liabilities of $ The assets include office equipment with a fair value approximating book value, buildings with a fair value higher than book value, and land with a fair value higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Sheffield, Inc. B Sheffield Inc. s pretax incomes for the years through were $ Oriole believes that an average of these earnings represents a fair estimate of an: and $ respectively However, it may need to consider adjustments for the following items included in pretax earnings: table Depreciation on Buildings each year Depreciation on Equipment each year Extraordinary Loss year Salary Expense each year C The normal rate of return on net assets for the industry is Assume that Oriole feels that it must earn a return on its investment, but that average excess earnings are to be capitalized for five years only. Based on these assumptions, calculate a reasonable offering price for Sheffield, Inc. Indicate how much of the price consists of goodwill. Round present value factor calculations to decimal places, e g and final answers to decimal placeseg. Goodwill$ Offering price$
Oriole Company is considering the acquisition of Sheffield, Inc. To assess the amount it might be willing to pay, Oriole makes the following computations and assumptions.
A
Sheffield Inc. has identifiable assets with a total fair value of $
and liabilities of $
The assets include office equipment with a fair value approximating book value, buildings with a fair value
higher than book value, and land with a fair value
higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Sheffield, Inc.
B
Sheffield Inc.
s pretax incomes for the years
through
were $
Oriole believes that an average of these earnings represents a fair estimate of an:
and $
respectively However, it may need to consider adjustments for the following items included in pretax earnings:
table
Depreciation on Buildings
each year
Depreciation on Equipment
each year
Extraordinary Loss
year
Salary Expense
each year
C
The normal rate of return on net assets for the industry is
Assume that Oriole feels that it must earn a
return on its investment, but that average excess earnings are to be capitalized for five years only. Based on these assumptions, calculate a reasonable offering price for Sheffield, Inc. Indicate how much of the price consists of goodwill.
Round present value factor calculations to
decimal places, e
g
and final answers to
decimal placeseg.
Goodwill$
Offering price$
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