The CFO of P Company has asked you to determine a reasonable purchase price for the...

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The CFO of P Company has asked you to determine a reasonable purchase price for the acquisition of S Company. The CFO has given you the following information for S Company: Fair value of assets $20,000,000 Fair value of liabilities 10,000,000 Average annual earnings expected for S Company for an indefinite period are $1,750,000. The normal rate of return on net assets for the industry is 15%. The CFO feels that P Company should earn a 25% return on the investment and that goodwill is determined by capitalizing excess earnings. Calculate a reasonable offering price for S Company. Show your work. The CFO of P Company has asked you to determine a reasonable purchase price for the acquisition of S Company. The CFO has given you the following information for S Company: Fair value of assets $20,000,000 Fair value of liabilities 10,000,000 Average annual earnings expected for S Company for an indefinite period are $1,750,000. The normal rate of return on net assets for the industry is 15%. The CFO feels that P Company should earn a 25% return on the investment and that goodwill is determined by capitalizing excess earnings. Calculate a reasonable offering price for S Company. Show your work.

Answer rating: 100% (QA)

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