Question

The net profits of a company after providing for taxation for the past five years are 78,000, 7 82,000, 88,000, 93,000 and 99,000. The capital employed in the business is ? 8,00,000 on which a reasonable rate of return of 10% is expected. It is expected that the company will be able to maintain the profits for the next five years. (a) Calculate the value of goodwill of the business on the basis of an annuity of super profits, taking the present value of an annuity of one rupee for five years at 10% interest as 3-78. (b) How would your answer differ if the goodwill is valued by capitalising the excess of the annual average profits over the reasonable return on capital employed on the basis of the same return of 10% ??​

Answer 1

Answer:

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Explanation:

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