Computation of Goodwill The Income of Greystone,Inc. ,During the Last Several Years Has

question 138

Essay

Computation of goodwill
The income of Greystone,Inc. ,during the last several years has averaged $765,000 annually.The company is now being offered for sale as a going concern.The value of Greystone's net identifiable assets (total assets minus all liabilities)at the present time is $4,675,000.
One of several corporations interested in buying Greystone,offers to pay an amount equal to the value of the net identifiable assets and to assume all liabilities.In addition,this prospective buyer is willing to pay for goodwill an amount equal to net earnings in excess of 10% on net assets,expected to continue four years.
You are to use the above information as a basis for computing the price that the investing corporation will offer for Greystone,Inc.$________

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Definitions:

Cost Estimation

The process of forecasting the cost of completing a project with a defined scope.

Scattergraph

A graphical method used to display the relationship between two quantitative variables, often used to identify trends or patterns.

Least Squares Regression

A statistical method used to model and analyze the relationship between a dependent variable and one or more independent variables by minimizing the sum of the squares of the differences between the observed and predicted values.

Variable Manufacturing Cost

Costs that vary with production volume, including direct materials, direct labor, and certain overheads.