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Basic Question 5 of 7
Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI, is ______.
B. less than the fair market value of the net assets of the acquiring company
C. more than the fair market value of the net assets of the acquired company
A. more than the fair market value of the net assets of the acquiring company
B. less than the fair market value of the net assets of the acquiring company
C. more than the fair market value of the net assets of the acquired company
User Contributed Comments 11
| User | Comment |
|---|---|
| TheProfet | Not clear. Goodwill should simply be defined as the difference between the purchase price and fair market value of the net assets of the company being aquired. |
| nagri | The profet - how do you determine the purchase price -- by the fair market value -- you don't pay more than fair market price do you? The goodwill arises if the intrinsic value is more than this purchase price. Semra -- rule no. 1 -- read the question carefully --- A. acquiring company and B.acquired company Acquiring is paying for the acquired company |
| o123 | nagri--rule no.2--dont talk about fight club! :P |
| inkfish | these two seem identical to me ;] A. more than the fair market value of the net assets of the acquiring company. C. more than the fair market value of the net assets of the acquired company. |
| vatsa | inkfish, company in option A is acquiring company where as company in option C is target company(acquired company). Hope this helps. |
| judylyh | what does it mean by estimated future earnings, discounted at the acquiring firm's ROI? |
| johntan1979 | PV can also be thought of as the intrinsic value |
| gill15 | I had to read the 5 times to see the difference between A and C |
| davcer | acquired company is the key |
| ana2 | Aren't A and C the exact same answer? Oh WAIT! Acquired vs Acquiring! So Sneaky!!! |
| choas69 | u dont need to read all this ****just read answer C |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
explain the financial reporting and disclosures related to goodwill
CFA® 2024 Level I Curriculum, Volume 2, Module 3.