Question
Acquired developed technology is expected to generate after-tax operating income of $50,000 in the first year and grow at a rate of 5% over the
-
Acquired developed technology is expected to generate after-tax operating income of $50,000 in the first year and grow at a rate of 5% over the next two years. Depreciation expense included in operating expenses is expected to be $5,000 in the first year, growing at a rate of 3% over the next two years. The value of acquired developed technology is estimated as the present value of operating cash flow over the first three years. The appropriate discount rate is 20%, and cash flows are assumed to occur at year-end for purposes of valuing acquired developed technology. Which value is closest to the amount at which the acquired developed technology should be reported on the acquiring company's balance sheet?
A. $ 85,000
B. $100,000
C. $143,000
D. $121,000
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started