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I have a doult on calculate deferred consideration in conso.
Example : (2.5 6/07),
Parentis, acquired 600 m equity shares in Offspring on 1/4/06,purchase as follow :
– 1 share in Parentis for two shares in Offspring
– The issue of $100 10% loan note for every 500 shares
– A deferred cash payment of 11% per share acquired payable on 1/4/07Value of each share (P) at the date of acquisition 75 cents and has cost of capital 10&
Note : Offspring Equity shares 0.25 each – 200 m,Please guide me how to calculate of deferred payment
Tq.
Christine
The deferred payment needs to be discounted using Parentis cost of capital – 10%.
You need also to be careful about the period of discounting. If 110$ is payable in one year’s time, the present value ( for the purposes of calculating goodwill ) is 110 * 1 / (1 + .1 ) So, the present value of 110$ payable in one year’s time is therefore $100. If it were payable in 2 years’ time the 100$ would need to be disounted by a second year ie by multipying $100 again by 1 / 1.1 giving a present value of $90.91. Multiplying by 1 / 1.1 is the same as dividing by 1.1.
So 110 in 2 years’ time has a present value of 110 / (1.1)(1.1) = 90.91
Hope that helps
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Please master MikeLittle’s posting above. Or (Number of shares acquired X 1/(1+r)n X share price).I hope this will help.
so please what would be the total consideration transferred as per what @christine71 posted?
Shares: 600m shares acquired x 1/2 (1 share for every 2) x 0.75 (market price of P shares) = 225m
Deferred consideration: $0.11 per share x 600m / 1.1 (discount factor) = $60m
Loan notes: 600m shares / 500 (1 loan note per 500 shares) x 100 (face value) = $120mTotal consideration = 225 + 60 + 120 = $405m
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