Assume you are the Chief Financial Officer at a company that has recently acquired another company for $4,000,000 in cash, $11,000,000 in stock, and the following contingent consideration:
$2,000,000 after Year 1,
$2,000,000 after Year 2 and
$600,000 after Year 3, if earnings of the subsidiary exceed $12,000,000 in each of the three years.
The fair value of the contingent – based consideration portion is $3,100,000.