Patrick Company is trying to decide whether to acquire Narineh Inc. Patrick Company expects that Narineh will earn approximately $200,000 per year in net income over the next five years. This income is higher than the 14% annual return on assets considered to be the industry ""norm."""
If the fair value of Narineh Inc. assets equal to $1,400,000. What is the estimation of goodwill if Patrick is willing to pay for excess earnings for an expected life of 4 years? *
$16,000
$18,000
$42,000
$22,000
If the fair value of Narineh Inc. assets equal to $1,400,000. What is the estimation of goodwill if excess earnings are expected to last indefinitely, but Patrick demands a higher rate of return of 10% because of the risk involved? *
$40,000
$70,000
$50,000
$32,500