Company A agrees to pay Company B a one-time payment 2 years from now equaling 10%...

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Company A agrees to pay Company B a one-time payment 2 years from now equaling 10% of their EBITDA if it exceeds or meets $10.0M and nothing if does not exceed $10.0M. Assume the following probabilities for potential outcomes: EBITDA (SM) <10 12 15 17 20 Probability 25% 30% 40% 5% 0% If we assume that a scenarios approach with a single discount rate of 7% is used in valuing the contingent consideration, how much should it be capitalized for immediately subsequent to the acquisition? Company A agrees to pay Company B a one-time payment 2 years from now equaling 10% of their EBITDA if it exceeds or meets $10.0M and nothing if does not exceed $10.0M. Assume the following probabilities for potential outcomes: EBITDA (SM) <10 12 15 17 20 Probability 25% 30% 40% 5% 0% If we assume that a scenarios approach with a single discount rate of 7% is used in valuing the contingent consideration, how much should it be capitalized for immediately subsequent to the acquisition?

Answer rating: 100% (QA)

To calculate the capitalized value of the contingent consideration we need to consider the probabili... View the full answer