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Business, 25.02.2020 20:46 levy72

Cumulative total net cash earnings for the past five years of $850,000 includes extraordinary cash gains of $67,000 and nonrecurring cash losses of $48,000. Alpha Company expects a return on its investment of 15%. Assume that Alpha prefers to use cash earnings rather than accrual‐based earnings to estimate its offering price and that it estimates the total valuation of Beta to be equal to the present value of cash‐based earnings (rather than excess earnings) discounted over five years. (Goodwill is then computed as the amount implied by the excess of the total valuation over the identifiable net assets valuation.)

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