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    Mergers & Acquistions - Goodwill

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    Goodwill is an accounting entry equal to the difference between purchase price and the net asset value of the acquired assets. As a business manager, what do you believe goodwill represents? How could the factors that goodwill represents actually contribute to improving the combined firm's future cash flows?

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    Solution Preview

    As a business manager, goodwill represents several things. At the inception, it represents the value of the brand of the company. The brand recognition of the brand by the customers, the positioning of the brand, and the brand equity is an important component of goodwill. To clarify this we consider some brands that have value. The Apple brand has high recognition and the company is not only able to sell its products worldwide but also launch new products. if the company is acquired, the brand will help increase the future cash flows of the company. Let us consider an actual acquisition/merger that has taken place. Kraft acquired Cadbury. One of ...

    Solution Summary

    The answer to this problem explains how goodwill helps increase the cash flow of the combined company. The references related to the answer are also included.