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Hello, the topic is about intangible assets and I am confused about how to calculate the Purchase price of a company. Basically Heywood is purchasing Fast trak by providing a Loan and other cash elements. However I am confused on why we need to do a present value of the Loan amount.
An extract of the question as follows Heywood offered a redeemable Loan note(on 1July 2011) of $25million that will be redeemed on 30th June 2015. It carried no interest, but market rates for this type of loan note is 13% per annum. The present value of $1 receivable in a future period where interest rates are 13% can be taken as $0.6 at end of year four.
The solution i saw was to perform a PV of the $25million as follows: $25million * 0.6 = $15million. So $15million is part of the purchase price. I am confused on how come $15million is part of the purchase price? Thank you
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