Peters Corporation acquires all of the voting shares of Stefan Company by issuing 500,000 shares of $1 par common stock valued at $10,000,000. Included in the agreement is a contingency guaranteeing the former shareholders of Stefan that Peters' shares will be worth at least $18 per share after one year. If the shares are worth less, Peters will pay the former shareholders of Stefan enough cash to reimburse then for the decline in value below $18 per share. Peters estimates that there is a 5% chance that the stock value will be $16 at the end on one year, and a 95% chance that the stock value will be $18 per share or higher. A discount rate of 10% is appropriate.

 

What amount below is closest to the value of the contingent consideration at the date of acquisition?

 

Answer rating: 100% (QA)

To find the value of the contingent consideration at the date of acquisition we need to calculate th... View the full answer