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I am having some issues in calculating the defer consideration .. I was working through the mock exam by Kaplan… Or acquire 30,000 shares from Blade on 1Apr 2007 by the way of exchange of 2 shares for every 3 shares in blade plus payment of $1 per purchased shares,payable in 3 years from the date of Acq..The terms is that Blade will have to make a profit of $3M during that period to make it payable..Capital cost is 10% and share price at aqua was $2.. Oh and Director not confident of making the 3M profit….
How do they calculate the Deferred consideration? Is there a formula? The one Kaplan used I am unable to replicate the answer30,000 shares * $1 = $30,000
$30,000 payable in three years’ time at a cost of capital of 10% is the equivalent of paying $30,000 * (1/1.10)(1/1.10)(1/1.10) which comes to something like $22,500
Is that what Kaplan has done?
Aww thank you very much Mike! i now understand what Kaplan did..The way the formula was set down I misinterpret the function of the 3… Now with your approach is easier to comprehend..
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