Goodwill Calculation Quesiton
Assume I'm doing an LBO. The purchase price for the company is $100. The FMV of my identifiable assets is $60, and my only liability is long-term debt, at book value, of $10.
The Market Value of that debt is $12, having shot up in expectation of a tender offer from the purchasing sponsor.
If I'm correct in my assumptions, I would calculate Goodwill as:
Purchase Price: $100
Less: FMV of Assets ($60)
Plus: FMV of Liabilities +$12
Goodwill: $52
Is this the correct way to do it, or would I just do the book value of the debt, making my goodwill $50?
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I think the basic way should be equity purchase price minus book value of equity. In reality, there’s intangible write-ups and deferred tax assets and liabilities as well.
So you’ll need the book value of assets, does the question only give the fair market value?
The basic way is Purchase price less Fair Market Value of Net Identifiable Assets (aka FMV of all assets except GW and PPA-related intangibles - FMV of Liabilities).
Gotcha, thanks
I'm not sure, but why would you reflect an increase of debt on the BS. You don't actually have to pay down that extra $2, so it would seem that you would have just $2 debt forever on your BS OR you'd need to create a DTA to account for the eventual gain from a write down of debt
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