Fair compensation for involved in business

Reference no: EM131010970

Mr. Wiseman has invested a sum of Rs. 2,00,000 in his own business which is a very profitable one. The annual profit earned from his business is Rs. 45000 which includes a sum of Rs 10,000 received as compensation of a part of his business premises. As an alternative to his engagement in his business, he could have invested the money in long term deposit with Bank earning a normal rate of interest of 10% and also could engage himself in employment thereby getting an annual salary of Rs 7200. Considering 2% as fair compensation for the risk involved in the business, calculate the value of goodwill of his business on capitalization of super profits at the normal rate of interest. Ignore taxation.

Reference no: EM131010970

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