The Owners of Dallas Electronics Store Are Contemplating Selling the Business

question 40

Multiple Choice

The owners of Dallas Electronics Store are contemplating selling the business. The cumulative earnings for the past 5 years totalled $ 900,000, including a gain on discontinued operations of $ 30,000. The annual earnings based on an average rate of return on investment for this industry would have been $ 138,000. If excess earnings are to be capitalized at 15%, then implied goodwill should be

• A) $ 210,000.
• B) $ 280,000.
• C) $ 240,000.
• D) $ 870,000.

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Definitions:

Recession

A decline in real GDP for two consecutive quarters.

Lowering Tax Rates

The act of reducing the percentage at which income or corporate profits are taxed, which can affect economic behaviors and government revenues.

Supply-siders

Economists who believe reducing barriers for people to produce (supply) goods and services, like lower taxes, will stimulate economic growth.

Curing Recessions

Efforts and policies aimed at stimulating economic recovery and ending periods of economic decline.