{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Wk1 HW - Week#1 HW Assignments Exercise 1-1 Part A Normal...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Week #1 HW Assignments Exercise 1-1 Part A Normal earnings for similar firms = ($15,000,000 - $8,800,000) x 15% = $930,000 Expected earnings of target: Pretax income of Condominiums, Inc., 2008 $1,200,000 Subtract: Additional depreciation on building ($960,000 × 30%) (288,000 ) Target’s adjusted earnings, 2008 912,000 Pretax income of Condominiums, Inc., 2009 $1,500,000 Subtract: Additional depreciation on building (288,000 ) Target’s adjusted earnings, 2009 1,212,000 Pretax income of Condominiums, Inc., 2010 $950,000 Add: Extraordinary loss 300,000 Subtract: Additional depreciation on building (288,000 ) Target’s adjusted earnings, 2010 962,000 Target’s three year total adjusted earnings 3,086,000 Target’s three year average adjusted earnings ($3,086,000 ÷ 3) 1,028,667 Excess earnings of target = $1,028,667 - $930,000 = $98,667 per year Present value of excess earnings (perpetuity) at 25%: = $394,668 (Estimated Goodwill) Implied offering price = $15,000,000 – $8,800,000 + $394,668 = $6,594,668. Part B Excess earnings of target (same as in Part A) = $98,667 Present value of excess earnings (ordinary annuity) for three years at 15%: $98,667 × 2.28323 = $225,279 Implied offering price = $15,000,000 – $8,800,000 + $225,279 = $6,425,279.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}