Jericho purchased all the outstanding ordinary shares of Israel Travel Corporation. Israel has one asset whose value exceeds its book value by P10,000. Israel's Equity is P80,000. We agreed with Israel that its excess earnings would last for 10 years and we were granted a 10% return on our investment. Israel's average income for negotiation purposes is P40,000 and the industry average rate of return is 30% on market value of net assets. Using the "present value of excess earnings" approach to the calculation of goodwill, what is the goodwill to be recorded by Jericho?

Jericho purchased all the outstanding ordinary shares of Israel Travel Corporation. Israel has one asset whose value exceeds its book value by P10,000. Israel's Equity is P80,000. We agreed with Israel that its excess earnings would last for 10 years and we were granted a 10% return on our investment. Israel's average income for negotiation purposes is P40,000 and the industry average rate of return is 30% on market value of net assets. Using the "present value of excess earnings" approach to the calculation of goodwill, what is the goodwill to be recorded by Jericho?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The spot rate is Lira 2,400/£. Interest rates for the next year are expected to be 8% in the UK and 20% in Italy. Required: Assume the International Fisher Effect is valid, evaluate the effect on the sterling cost of this transaction if Bing Ltd delay payments by one year.
Megahurtz International Car Rentals has rent -a-car outlets throughout the world. It keeps funds for transaction purposes in many foreign currencies. Assume that in 200XX it held 100,000 reals in Brazil worth $42,000. It earned. 12 percent interest, but the real declined 20 percent against the dollar. a. What is the value of its holdings, based on Canadian dollars, at year-end? ( Do not round intermediate calculations.) Value of the holdings Sb. What is the value of its holdings, based on Canadian dollars, at year end if it earned 9 percent and the real went up by 10 percent against the dollar? (Do not round intermediate calculations.) Value of the holdings S
(Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days. Given the following exchange rates and interest rates, the break-even investment rate (for money market hedge) is _________% when comparing the forward hedge and the money market hedge. Assumptions Value 90-day A/R in pounds £2,000,000.00 Spot rate, US$ per pound ($/£) $1.5610 90-day forward rate, US$ per pound ($/£) $1.544 3-month U.S. dollar investment rate 14.000% 3-month U.S. dollar borrowing rate 12.000% 3-month UK investment interest rate 7.500% 3-month UK borrowing interest rate 10.000% Put options on the British pound: Strike rates, US$/pound ($/£) Strike rate ($/£) $1.55 Put option premium 1.2% Strike rate ($/£) $1.54 Put option premium 1.1% Strike rate ($/£) $1.55 Call option premium 2.1%…
A U.S. firm holds an asset in Israel and faces the following scenario: Probability Spot rate Pº O121.971 12,898.00 1,289.80 State 1 O-52.6316 40% $ IS 0.30 /IS 1,000 State 2 35% $ IS 0.20 /IS 2,500 State 3 25% Where P= Israeli shekel (IS) price of the asset held by the U.S. firm. The "exposure" (i.e.. the regression coefficient beta) is $ 0.15 /IS IS 1.500
Exhibit 30 (This relates to question below) Assume that Baps Corp. is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5 million. If the project is undertaken, Baps would terminate the project after four years. Baps's cost of capital is 13 percent, and the project has the same risk as Baps's existing projects. All cash flows generated from the project will be remitted to the parent at the end of each year. Listed below are the estimated cash flows the Norwegian subsidiary will generate over the project's lifetime in Norwegian kroner (NOK): Year 1 NOK10,000,000 Year 1 Year 2 $.13 NOK15,000,000 Year 2 Year 3 The current exchange rate of the Norwegian kroner is $.135. Baps's exchange rate forecasts for the Norwegian kroner over the project's lifetime are listed below: $.14 NOK17,000,000 Year 3 Year 4 $.12 NOK20,000,000 Year 4 $.15 Refer to Exhibit 30. What is the net present value of the Norwegian project?
Steiner Co. recently established a subsidiary in Belarus. Given its immediate success, a rival company has offered Steiner Co. 10 million rubles to purchase the subsidiary today. The Belarusian ruble currently trades at $0.30, and Steiner internally forecasts the ruble to appreciate to $0.33 next year and $0.35 the following. If Steiner continues operating its subsidiary, the company expects to generate 5 million rubles in free cash next year and 10 million rubles the following. These cash flows would be remitted back to the parent in the U.S. at the end of the year in which they are earned. Steiner's required rate of return on similar projects is 20 percent. How much more/(less) would Steiner make by selling the company vs. running its subsidiary for the next two years? $805,556 O (-$327,270) O $1,111,111 O $908,750
A. Suppose, Company ABC is U.S. based company and has a British subsidiary. It is expected that the subsidiary will send 10 million pounds in two months to the Company. Thus, Company ABC is concerned that in the next two months the pound will depreciate in value. i) A Firm buys an FRA on 90-day LIBOR expiring in 30 days with Notional principal of $20 million. The contract rate is 10%. If at expiration, LIBOR is 8%, how much will the long has to pay to the short i.e., seller of FRA. What happens if at expiration, LIBOR is 12%?
a) watax inc a mining outfit in phoenix intends to engage in mining operations in southern Africa after conducting comprehensive feasibility of the referenced country. Assume that the prevailing interest rate in South Africa is 9 percent. To meet its working capital needs, watax will borrow south African rands, convert them to us dollars, and repay the loan in one year. What will watax effective financing rate if the rand depreciates by 6 perfect or appreciates by 3 percent. Discuss your result. b) given the information and assuming a 50 % probability that either scenario would occur, determinate the expected value of the effective financing rate. c) Assume that the one tear prevailing interest in mexico is 5 percent while that in the US is 8%. What percentage change in the peso would cause a US firm borrowing peso to incur the same effective financing rate as it would it borrowed dollars. Discuss the result
Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 420,000 reals in Brazil worth 350,000 dollars. It drew 9 percent interest, but the Brazilian real declined 18 percent against the dollar. What is the value of its holdings, based on U.S. dollars, at year-end? Note: Do not round intermediate calculations. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 6 percent interest and the real went up by 10 percent against the dollar? Note: Do not round intermediate calculations.
After all foreign and U.S. taxes, a U.S. corporationexpects to receive 2 pounds of dividends per share from a British subsidiary this year.The exchange rate at the end of the year is expected to be $1.29 per pound, and the poundis expected to depreciate 5% against the dollar each year for an indefinite period. The dividend(in pounds) is expected to grow at 10% a year indefinitely. The parent U.S. corporationowns 10 million shares of the subsidiary. What is the present value in dollars of its equityownership of the subsidiary? Assume a cost of equity capital of 11% for the subsidiary.
(i) Databank holds ¢460million T-Bill but it needs cash to settle an investor whose investment has matured and is expected to be paid ¢400 million. You have been asked to approach Ecobank to sell the T-Bill for ¢415 million on the morning of 19th May, 2008 with agreement to repurchase the bill on the evening of 23rd May, 2008. What is the cedi cost of this transaction to Databank? What is the Repo Rate on this transaction?
Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €10.02 million payable in one year. The current spot exchange rate is $1.05/€ and the one-year forward rate is $1.10/€. The annual interest rate is 6 percent in the United States and 5 percent in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. a. It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Crédit Lyonnaise against the euro receivable. Which alternative would you recommend? Forward hedgo Money market hedge Recommend alternative i