On acquiring Prairie SA, Source SA undertakes to pay additional consideration depending on the next year's profit: 0 with a probability of 30 %, 400,000 with a probability of 50 % and 800,000 with a probability of 20 %. Case convention: scenarios and probabilities are case data; probability weighting is not the only method of estimating fair value, and the calculation requested is before discounting. Calculate the expected value of the contingent consideration.
- Payment in scenario 1
- 0
- Probability of scenario 1
- 30 %
- Payment in scenario 2
- 400,000
- Probability of scenario 2
- 50 %
- Payment in scenario 3
- 800,000
- Probability of scenario 3
- 20 %