Bolton Limited acquires the net assets of Pamelia Limited for a cash consideration of $100 000.One half is to be paid on acquisition date and one half is payable in one year's time.The appropriate discount rate is 10% p.a.The present value of the cash outflow in one year's time is:
A)$45 454
B)$50 000
C)$54 545
D)$55 000

Question

Quizplus · Accepted Answer

The present value of the cash outflow in one year's time is $45,454. This is calculated as follows:Present value = Future value / (1 + r)^nwhere:Future value = $50,000r = 10%n = 1 yearPresent value = $50,000 / (1 + 0.10)^1Present value = $50,000 / 1.10Present value = $45,454

Bolton Limited Acquires the Net Assets of Pamelia Limited for a Cash