Problem:
At her death, Abigail owned 55% of the stock in Finch Corporation, with the balance held by family members. In the past five years, Finch has earned average net profits of $1.6 million, and on the date of Abigail's death, the book value of its stock is $3.8 million. An appropriate rate of return for the type of business Finch is in is 8%.
Required:
Question 1: Assuming that goodwill exists, what is the value of the Finch stock?
Question 2: What factors could be present to reduce the value of such goodwill?
Note: Please provide through step by step calculations.