Q-1 Golden Company is considering the acquisition of Arrow, Inc. To assess the amount it might be willing to pay, Golden makes the following computations and assumptions.

A. Arrow, Inc. has identifiable assets with a total fair value of $6,000,000 and liabilities of $3,700,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 25% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Arrow, Inc.

Required:

A. Assume that Golden feels that it must earn a 20% return on its investment, and that goodwill is determined by capitalizing excess earnings. Based on these assumptions, calculate a reasonable offering price for Arrow, Inc. Indicate how much of the price consists of goodwill.