Parsons Corporation acquires all of the assets and liabilities of Sonata Company at the beginning of...

 

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Parsons Corporation acquires all of the assets and liabilities of Sonata Company at the beginning of 2017, in an acquisition reported as a merger. Developed technology, not reported on Sonata's balance sheet, is appropriately reported as an acquired identifiable intangible asset. Parsons uses the income approach to value this intangible asset, at the present value of forecasted operating cash flow, net of taxes, capital charges and additional capital expenditures, for the next four years. The following information is collected as part of the valuation process: . Projected 2017 operating income derived from the developed technology is $4 million before tax. This amount is expected to grow at a rate of 6% yearly. • Depreciation and amortization expense included in operating income is $1 million. This amount is expected to be constant during 2017-2020. • The tax rate for 2017-2020 is 35%. • Additional capital expenditures related to the developed technology are forecasted to be $500,000 in 2017, growing at a rate of 2% yearly. • The capital charge on contributory assets is estimated at $200,000. This amount is expected to be constant during 2017-2020. • The appropriate risk-adjusted discount rate is 20%. Required Calculate the value of the developed technology, reported by Parsons as an acquired identifiable intangible asset. Round answers to the nearest dollar and assume cash flows occur at year-end. Net cash flow 2017= $2,900,000 Net cash flow 2018 $3,046,000 Net cash flow 2019 $3,201,160 Net cash flow 2020 3,366,038 Total discounted cash flow for 4-year period = Parsons Corporation acquires all of the assets and liabilities of Sonata Company at the beginning of 2017, in an acquisition reported as a merger. Developed technology, not reported on Sonata's balance sheet, is appropriately reported as an acquired identifiable intangible asset. Parsons uses the income approach to value this intangible asset, at the present value of forecasted operating cash flow, net of taxes, capital charges and additional capital expenditures, for the next four years. The following information is collected as part of the valuation process: . Projected 2017 operating income derived from the developed technology is $4 million before tax. This amount is expected to grow at a rate of 6% yearly. • Depreciation and amortization expense included in operating income is $1 million. This amount is expected to be constant during 2017-2020. • The tax rate for 2017-2020 is 35%. • Additional capital expenditures related to the developed technology are forecasted to be $500,000 in 2017, growing at a rate of 2% yearly. • The capital charge on contributory assets is estimated at $200,000. This amount is expected to be constant during 2017-2020. • The appropriate risk-adjusted discount rate is 20%. Required Calculate the value of the developed technology, reported by Parsons as an acquired identifiable intangible asset. Round answers to the nearest dollar and assume cash flows occur at year-end. Net cash flow 2017= $2,900,000 Net cash flow 2018 $3,046,000 Net cash flow 2019 $3,201,160 Net cash flow 2020 3,366,038 Total discounted cash flow for 4-year period =

Answer rating: 100% (QA)

Present value of 2017 cash flow 2900000 1 021 2322500 Pre... View the full answer