The capitalization rate when figuring goodwill should be a figure assigned to show
A) Risk and expected growth rate of future earnings
B) Risk and profit minus taxes
C) Expected growth rate and profit
D) Expected growth rate and the value of tangible assets

Question

Quizplus · Accepted Answer

The capitalization rate when figuring goodwill is a figure that reflects the risk and expected growth rate of future earnings. It is used to convert a business's expected future economic benefits into present value, which is necessary to calculate goodwill. Profit minus taxes or the value of tangible assets alone are not sufficient to determine the capitalization rate in the context of figuring goodwill.

The Capitalization Rate When Figuring Goodwill Should Be a Figure