Ceria Berhad acquires 100% of the equity of Kelora Berhad on 31 December 2022. There are...
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Ceria Berhad acquires 100% of the equity of Kelora Berhad on 31 December 2022. There are three elements to the purchase consideration: an immediate payment of RM5,000,000, and two further payments of RM1,000,000 each on 31 December 2023 and 31 December 2024 if the return on capital employed (ROCE) exceeds 10% in each of the subsequent financial years ending 31 December. All indicators have suggested that this target will be met. Ceria Berhad uses a discount rate of 7% in any present value calculations. Required: Compute the value of the investment. Ceria Berhad acquires 100% of the equity of Kelora Berhad on 31 December 2022. There are three elements to the purchase consideration: an immediate payment of RM5,000,000, and two further payments of RM1,000,000 each on 31 December 2023 and 31 December 2024 if the return on capital employed (ROCE) exceeds 10% in each of the subsequent financial years ending 31 December. All indicators have suggested that this target will be met. Ceria Berhad uses a discount rate of 7% in any present value calculations. Required: Compute the value of the investment.
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To compute the value of the investment we need to calculate the present value of the future cash flo... View the full answer
Related Book For
Using Financial Accounting Information The Alternative to Debits and Credits
ISBN: 978-1133161646
7th Edition
Authors: Gary A. Porter, Curtis L. Norton
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