CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

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 ______.

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
Correct Answer: C

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
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