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What is the treatment for the following consideration
Parent acquires 18 million shares from subs @ $2.42 per acquired share but pays 2 years after acquisition. Patronic’s cost of capital is 10% per annum. I don’t understand the way it has been calculated in the answer:
18000 x $2.42 x 1/1.21 = $36000
why x 1/1.21?1 / 1.21 is the same as discounting for two years at 10% and is therefore the same as 1 / (1.10)(1.10)
!.10 x 1.10 = 1.21 …… so 1/1.21 is discounting for two years at 10% cost of capital
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