When a Company Reports Goodwill in Its Balance Sheet, We

question 20

Multiple Choice

When a company reports goodwill in its balance sheet, we know that

• A) It was internally generated because the company has earnings in excess of those of other companies in the industry.
• B) The company purchased it.
• C) The company will be reporting amortization expense for the goodwill.
• D) The company will not be reporting an impairment loss for the goodwill.

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Definitions:

Cost Of Capital

The essential yield required to justify proceeding with a capital expenditure venture, such as the erection of a new plant.

Cash Flow

The net amount of cash being transferred into and out of a business, influencing its liquidity, investment, and operational strategies.

Equivalent Annual Annuity

A method used in financial analysis to compare the profitability of investments with differing durations by converting values into equal annual payments.

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionally weighted.