The valuation approach that considers the value of goodwill is the:
A)balance sheet technique.
B)excess-earnings method.
C)discounted future earnings approach.
D)market approach.

Question

Quizplus · Accepted Answer

The excess-earnings method is the valuation approach that considers the value of goodwill. This method estimates the value of a business based on the net tangible assets plus the present value of the future earnings that exceed the expected rate of return on those tangible assets. Goodwill is the difference between the estimated value of the business and the total value of its net tangible assets, and is included in the excess earnings. The other options listed are also valuation approaches but do not specifically consider the value of goodwill.

The Valuation Approach That Considers the Value of Goodwill Is