CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Assume that over the last 5 years the tangible business assets of ABC Inc. have averaged $500,000. Net earnings have averaged $150,000. A fair return of in the industry is 10% and the intangible assets should be capitalized at a rate of 40%. What is the value of ABC Inc. using excess earnings method?
A. $500,000
B. $600,000
C. $750,000
Explanation: ABC Inc.'s rate of return: 150,000/500,000 = 30%. The excess 20%, or $100,000, is due to intangible assets. The value of intangibles is 100,000 / 40% = $250,000. The value of ABC Inc. is thus 500,000 + 250,000 = 750,000.

User Contributed Comments 2

User Comment
zipphani2 Good one....
cminor Cheeky. I like it
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