To induce the owners of Axel Company to sell to Ayala Corporation, an amount was included in the acquisition agreement. Ayala agrees to pay the former owners of Axel P5.00 for every peso of total Net Income before Interest and Taxes(NIBIT) earned over P20 million in the next four years. The payment would be made at the end of four years. Expected total NIBIT in the next four years is as follows:

Total NIBIT (earned) Probability

P 5,000,000 0.20

15,000,000 0.50

30,000,000 0.20

35,000,000 0.10

What is the value of the earnout after the date of acquisition, assuming a discount rate of 12% (PV factor of 1.57351936)?

1. P11,121,566
2. P11,801,395
3. P15,751,936
4. P17,500,000