Sunland Homes Company is considering the acquisition of Cheyenne, Inc. early in 2025. To assess the amount, it might be willing to pay, Sunland Homes makes the following computations and assumptions. A. Cheyenne, Inc. has identifiable assets with a total fair value of $15,008,000 and liabilities of $8,813,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 75% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Cheyenne, Inc. B. Cheyenne, Inc.'s pretax incomes for the years 2022 through 2024 were $1, 202, 200, $ 1,503,000, and $951, 800, respectively. Sunland Homes 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 to the following items included in pretax earnings: Depreciation on buildings (each year) 962, 100 Depreciation on equipment (each year ) 54,600 Extraordinary loss (year 2024) 303, 600 Sales commissions (each year) 254, 500 C. The normal rate of return on net assets for the industry is 15%. Assume that Sunland Homes feels that it must earn a 15% return on its investment, but that average excess earnings are to be capitalized for three years only. Based on these assumptions, calculate a reasonable offering price for Cheyenne, Inc. Indicate how much of the price consists of goodwill. Ignore tax effects. ( Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places e. g . 58,971.) Goodwill $ Offering price $
Sunland Homes Company is considering the acquisition of Cheyenne, Inc. early in 2025. To assess the amount, it might be willing to pay, Sunland Homes makes the following computations and assumptions. A. Cheyenne, Inc. has identifiable assets with a total fair value of $15,008,000 and liabilities of $8,813,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 75% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Cheyenne, Inc. B. Cheyenne, Inc.'s pretax incomes for the years 2022 through 2024 were $1, 202, 200, $ 1,503,000, and $951, 800, respectively. Sunland Homes 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 to the following items included in pretax earnings: Depreciation on buildings (each year) 962, 100 Depreciation on equipment (each year ) 54,600 Extraordinary loss (year 2024) 303, 600 Sales commissions (each year) 254, 500 C. The normal rate of return on net assets for the industry is 15%. Assume that Sunland Homes feels that it must earn a 15% return on its investment, but that average excess earnings are to be capitalized for three years only. Based on these assumptions, calculate a reasonable offering price for Cheyenne, Inc. Indicate how much of the price consists of goodwill. Ignore tax effects. ( Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places e. g . 58,971.) Goodwill $ Offering price $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Sunland Homes Company is considering the acquisition of Cheyenne, Inc. early in 2025. To assess the amount, it might
be willing to pay, Sunland Homes makes the following computations and assumptions. A. Cheyenne, Inc. has
identifiable assets with a total fair value of $15,008,000 and liabilities of $8,813,000. The assets include office
equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land
with a fair value 75% higher than book value. The remaining lives of the assets are deemed to be approximately equal to
those used by Cheyenne, Inc. B. Cheyenne, Inc.'s pretax incomes for the years 2022 through 2024 were $1, 202, 200, $
1,503,000, and $951, 800, respectively. Sunland Homes 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 to the following
items included in pretax earnings: Depreciation on buildings (each year) 962, 100 Depreciation on equipment (each year
) 54,600 Extraordinary loss (year 2024) 303, 600 Sales commissions (each year) 254, 500 C. The normal rate of return on
net assets for the industry is 15%. Assume that Sunland Homes feels that it must earn a 15% return on its investment,
but that average excess earnings are to be capitalized for three years only. Based on these assumptions, calculate a
reasonable offering price for Cheyenne, Inc. Indicate how much of the price consists of goodwill. Ignore tax effects. (
Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places e. g
. 58,971.) Goodwill $ Offering price $
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