Kivi Service Stations is considering expanding its operations to include the greater Dubuque area. Rather than build new service stations in the Dubuque area, management plans to acquire existing service stations and convert them into Kivi Outlets. Kivi is evaluating two similar acquisition opportunities. Information relating to each of these service stations is presented below: Joe's Garage Estimated normal rate of return on net assets Fair value of net identifiable assets Actual average net income for past five $220,000 years b. Compute an estimated fair value for any goodwill associated with Kivi purchasing Gas N' Go. Base your computation upon an assumption that Kivi's management expects excess earnings to continue for four years. 20% Gas N' Go $950,000 20% $980,000 $275,000
Kivi Service Stations is considering expanding its operations to include the greater Dubuque area. Rather than build new service stations in the Dubuque area, management plans to acquire existing service stations and convert them into Kivi Outlets. Kivi is evaluating two similar acquisition opportunities. Information relating to each of these service stations is presented below: Joe's Garage Estimated normal rate of return on net assets Fair value of net identifiable assets Actual average net income for past five $220,000 years b. Compute an estimated fair value for any goodwill associated with Kivi purchasing Gas N' Go. Base your computation upon an assumption that Kivi's management expects excess earnings to continue for four years. 20% Gas N' Go $950,000 20% $980,000 $275,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Kivi Service Stations is considering expanding its operations to include the greater Dubuque area. Rather than build new service stations in the Dubuque area, management plans to acquire existing service stations and
convert them into Kivi Outlets.
Kivi is evaluating two similar acquisition opportunities. Information relating to each of these service stations is presented below:
Estimated normal rate of return on net
assets
Joe's
Garage
20%
$950,000
Gas N'
Go
Fair value of net identifiable assets
Actual average net income for past five
years
b. Compute an estimated fair value for any goodwill associated with Kivi purchasing Gas N' Go. Base your computation upon an assumption that Kivi's management expects excess earnings to continue for four years.
$220,000
20%
$980,000
$275,000
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