At the Beginning of 2010, Rector Corporation Is Considering the Purchase

question 15

Multiple Choice

At the beginning of 2010, Rector Corporation is considering the purchase of the Daphne Corporation.Daphne's recorded book value of its net assets is $390, 000, but the current market value of these net assets is $490, 000.In addition, the market value of an unrecorded identifiable intangible asset of the company is $75, 000.The estimated annual income of Daphne is $68, 000.The purchase price will be equal to the income is to be discounted in perpetuity at 10%.If Rector acquires Daphne, how much goodwill will be reported in the consolidated financial statements prepared at the end of 2010?

• A)$ 75, 000
• B)$115, 000
• C)$175, 000
• D)$290, 000

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Definitions:

Dispersion

Measures the spread of a set of data points around their mean or median value.

Standard Deviation

A statistical measure that represents the dispersion or spread of a dataset relative to its mean, indicating how spread out the data points are.

Variance

A measure of the dispersion of a set of data points around their mean; conceptually, it's the average of the squared differences from the Mean.

Cash Flows

The total amount of money being transferred into and out of a business, determining its operating, investing, and financing activities' liquidity.