Calculate the amount of economic goodwill implied in the following simplified example. Owners invested $6 million to

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Calculate the amount of economic goodwill implied in the following simplified example. Owners invested $6 million to start a firm with no debt financing. The firm purchased PPE for $5 million. It invested $1 million in net working capital. The owners hired management and workers and incurred other costs to operate the business. With total certainty and confidence it is estimated net income will be $900,000/year forever. Depreciation and amortization charges will be sufficient to replace depreciable assets as required. The risk-adjusted required rate of return for the owners is 13%. What does this derived economic goodwill mean? If this amount were negative, what would this mean?
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...
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Intermediate Accounting

ISBN: 978-0132612111

Volume 1, 1st Edition

Authors: Kin Lo, George Fisher

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