Reference no: EM132498501

Jeremiah Inc. is being targeted for acquisition by Argo Corporation. 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 Jeremiah includes the following:

1. Current net assets: $5.1 million
2. Expected return on net assets for industry: 10%

Reported net income for the previous six consecutive years:

Year             Amount                    Year               Amount

2015           $710,000              2018            $745,000

2016           $680,000              2019             $815,000

2017            $980,000               2020             $835,000

• Net income for 2020 included a $200,000 gain from the sale of a discontinued operation.

Question 1: Assuming that excess earnings are expected to continue for 8 years, and ignoring the time value of money, estimated goodwill is

Option 1: $2,273,000.

Option 2: $2,006,667.

Option 3: $1,854,333.

Option 4: $1,531,733.