At her death, Abigail owned 55% of the stock in Finch Corporation, with the balance held by

Question:

At her death, Abigail owned 55% of the stock in Finch Corporation, with the balance held by family members. In the past five years, Finch has earned average net profits of $1.6 million, and on the date of Abigail’s death, the book value of its stock is $3.8 million. An appropriate rate of return for the type of business Finch is in is 8%.

a. Assuming that goodwill exists, what is the value of the Finch stock?

b. What factors could be present to reduce the value of such goodwill?

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...