80.2K

Verified Solution

Link Copied!

Assume that Carla Vista feels that it must earn a $20\%$ return on its investment, and that goodwill is determined by capitalizing Carla Vista Company is considering the acquisition of Metlock, Inc. To assess the amount it might be willing to pay, Carla Vista makes

the following computations and assumptions.

A$.$ Metlock, Inc. has identifiable assets with a total fair value of $$6,016,000$ and liabilities of $$3,702,000.$ The assets include

office equipment with a fair value approximating book value, buildings with a fair value $25\%$ higher than book value, and land

with a fair value $50\%$ higher than book value. The remaining lives of the assets are deemed to be approximately equal to

those used by Metlock, Inc.

B$.$ Metlock, Inc's pretax incomes for the years $2020$ through $2022$ were $$473,300,$$$571,300,$ and $$373,000,$ respectively. Carla

Vista believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future.

However, it may need to consider adjustments for the following items included in pretax earnings:

C$.$ The normal rate of return on net assets for the industry is $15\%.$

excess earnings. Based on these assumptions, calculate a reasonable offering price for Metlock, Inc. Indicate how much of the

price consists of goodwill. $($Round present value factor calculations to $5$ decimal places, e$.$g$.1\mathrm{.}25124$ and final answers to $0$ decimal

places e$.$g$.58,971.$

Goodwill

$

Offering price

Show all imagesShow all images

Answer & Explanation Solved by verified expert

See Answer