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

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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
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This note was uploaded on 07/31/2011 for the course ACCT 401 taught by Professor Bennett during the Spring '08 term at Strayer.

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

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