Watson Limited acquires the net assets of Lake Limited for a cash consideration of $160 000. One half is to be paid on acquisition date and the other half is payable in one year's time. The appropriate discount rate is 8% p.a. The present value of the cash outflow in one year's time is:
A) $800 000
B) $74 072
C) $86 402
D) $72 728

Question

Quizplus · Accepted Answer

The present value of the cash outflow in one year's time can be calculated as follows:
PV = FV / (1 + r)^n
Where:
PV = Present value
FV = Future value (amount payable in one year)
r = Discount rate (8%)
n = Number of periods (1 year)
So, PV = 80 000 / (1 + 0.08)^1 = $74 072 (rounded to the nearest dollar)

Watson Limited Acquires the Net Assets of Lake Limited for a Cash