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Present Value of $1
Discount Rate
Present Value of an Annuity of
$1 Discount Rate

Periods
8%
10%
8%
10%

5
.6806
.6209
3.9927
3.7908

7
.5835
.5132
5.2064
4.8684

9
.5002
.4241
6.2469
5.7590

Psyche Company wants to acquire Trim Company. Trim's ROI has been above average for its industry; net income has averaged $70,000 a year more than the industry average. These "excess" earnings are expected to continue at this amount for 5 years. Assuming a discount rate of 8%, how much goodwill will arise from Psyches' purchase of Trim?

a. $ 40,836

b. $ 88,157

c. $279,489

d. $350,000

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Solution Summary

Often the hardest part of these problems is figuring out if you have a lump sum or an annuity. Guidance is given on this matter.

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So this uses the present value of $ concepts...again...we need the number of ...

Solution provided by:
Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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