The First Step in Estimating Goodwill in the Excess Earnings

question 32

Multiple Choice

The first step in estimating goodwill in the excess earnings approach is to:

• A) determine normal earnings.
• B) identify a normal rate of return for similar firms.
• C) compute excess earnings.
• D) estimate expected future earnings.

---

Definitions:

Annual Interest Rate

The percentage of principal earned as interest on an investment or paid on a loan over a one-year period.

Down Payment

An initial, upfront partial payment for the purchase of expensive items/services, typically associated with real estate or vehicles.

Accrued Interest

The interest that has accumulated on a bond, loan, or other financial instrument since the last interest payment was made.

Compounded Annually

Interest on an investment or loan calculated once a year, where each year's interest is added to the principal.