Suppose that an acquirer decides to pay a 25% premium to buy Uber. The book value of Uber’s net assets is $6.7 million. The fair value of Uber’s net assets is estimated at $7 million. What amount of goodwill will be recorded in this acquisition? Question 14Answer a. $75,000 b. $8,750,000 c. $1,675,000 d. $1,750,000
Suppose that an acquirer decides to pay a 25% premium to buy Uber. The book value of Uber’s net assets is $6.7 million. The fair value of Uber’s net assets is estimated at $7 million. What amount of goodwill will be recorded in this acquisition? Question 14Answer a. $75,000 b. $8,750,000 c. $1,675,000 d. $1,750,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Suppose that an acquirer decides to pay a 25% premium to buy Uber. The book value of Uber’s net assets is $6.7 million. The fair value of Uber’s net assets is estimated at $7 million. What amount of
Question 14Answer
a.
$75,000
b.
$8,750,000
c.
$1,675,000
d.
$1,750,000
Expert Solution
Step 1: Understanding of premium
Lets understand the basics.
Acquisition premium is a paid to seller of entity on the fair value of net asset.
Goodwill is a difference between the consideration paid and fair value of asset acquired.
Goodwill = (Net asset * (100% + Acquisition premium %)) - Fair value of asset
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