Question 4: Goodwill (12 marks) Argo Corporation is targeting Tiger Inc. for acquisition. As an analyst for Argo, you are asked to determine the goodwill that, pending various assumptions, may be inherent in this potential transaction. The available information relating to Tiger includes the following Current net assets: $5 million Expected return on net assets for industry 10% Reported net income for the previous six consecutive years Year 2013 Amount $720,000 $690,000 990,000 Year 2016 2017 2018 Amount $750,000 $800,000 $825,000 2014 2015 The earnings for 2015 included a $200,000 gain from the sale of a discontinued part of its business. Required: Answer the following questions and show your calculations. Round to the nearest dollar, no decimals a) Calculate the normal earnings the company would expect to earn using the industry average b) Calculate the average earnings for the past 6 years c) What is the value of the excess earnings? d) What is estimated goodwill by capitalizing average excess earnings at 15% e) Assuming that excess earnings are expected to continue for 7 years, and ignoring the time value of money, estimated goodwill is? f) Assuming that excess earnings are expected to continue for 7 years and average excess earnings are discounted at 12%, estimated goodwill is? (use financial calculator or tables page 784-787)