Reference no: EM132578813
As the president of Niagara Wineries Corp., you are considering purchasing Grimsby Wine Accessories Limited, whose statement of financial position is summarized as follows:
Current assets $ 240,000
Plant and equipment (net) 825,000
Other assets 285,000
Total $1,350,000
Current liabilities $ 210,000
Long-term liabilities 550,000
Common shares 440,000
Retained earnings 150,000
Total $1,350,000
- The current assets' fair value is $80,000 higher than their carrying amount because of inventory undervaluation. All other assets and liabilities have book values that approximate their fair value. The normal rate of return on net assets for the industry is 15%. The expected annual earnings for Grimsby are $140,000.
Hint: Use either:
Table for PRESENT VALUE OF 1
or
Factor table PRESENT VALUE OF AN ANNUITY OF 1.
Question 1: Assuming that the excess earnings are expected to continue for 5 years, how much would you be willing to pay for goodwill, and for the company? Estimate goodwill by the present value method. (Round factor values to 5 decimal places, e.g. 1.25124 and round answers to 0 decimal places, e.g. 5,275.)