Reference no: EM133189401

Question - Guinevere Company is planning to sell the business to new interests. The cumulative net earnings for the past five years amounted to P16,500,000 including expropriation loss of P1,500,000. The normal rate of return is 20%. The fair value of net assets of entity at current year end was P10,000,000.

What is the amount of goodwill if:

1. Excess earnings are purchased for 5 years?

A. 8,000,000

B. 4,000,000

C. 5,000,000

D. 4,500,000

2. Excess earnings are capitalized at 25%?

A. 7,200,000

B. 6,400,000

C. 8,000,000

D. 3,600,000

3. Annual average earnings are purchased for 3 years?

A. 10,800,000

B. 18,000,000

C. 4,800,000

D. 5,400,000

4. Annual average earnings are capitalized at 25%?

A. 1,600,000

B. 3,600,000

C. 4,400,000

D. 2,000,000

5. Excess earnings are discounted at 12% for 5 years? (the PV of an ordinary annuity of 1 for 5 years at 12% is 3.60)

A. 12,960,000

B. 10,800,000

C. 5,760,000

D. 7,200,000