Instructor key — Module 4: The Letter of Intent (LOI) Architecture: Asset vs. Stock Purchases, Exclusivity, and Key Provisions
Instructor/solutions version. Keep separate from the student assignment during assessment.
Calculation solution
EV is $2.6m, debt $350,000 and excess cash $70,000. Calculate equity consideration before other adjustments.
Calculated result: 2,320,000.00000000 (actual USD, except where the question requests a ratio or return). Bridge operating value to the residual seller claim; do not also pay full EV as equity. Use appropriate display rounding while retaining formula precision. This result is generated from the independent assignment inputs, not copied from the chapter answer.
Conceptual and judgment marking
A complete conceptual response identifies the measure's economic purpose, the defined perimeter and the risk of confusing it with another metric. Award up to 20 points for explanation, not terminology alone. For the applied question, award up to 15 for linking evidence to a concrete acquisition consequence; do not require an optimistic recommendation.
Spreadsheet marking
Award 15 of the 30 spreadsheet points for live links from assumptions, 10 for a coherent 10% mutation and predicted direction, and 5 for units, readable formatting and checks. Inspect formulas directly rather than accepting cached numbers. Use the instructor workbook for the controlling capstone model; this independent lab uses different inputs.
Calculation marking: 10 points for the correct equation/perimeter, 15 for intermediate arithmetic, and 10 for result, units and rounding. Overall pass requires 80 and all critical checks in the student version.
Original chapter practice solutions
The following solutions were moved out of the chapter so full answers no longer sit immediately below student questions. Match them in order to the chapter's practice problems.
Worked solution: Equity consideration is $2.7 million: $3 million − $400,000 + $100,000. If the buyer separately funds the $400,000 payoff, do not also pay the seller $3 million as equity proceeds. The agreement and funding schedule must describe the same cash, debt, and price perimeter.
Worked solution: Residual is $650,000. The arithmetic does not validate the underlying asset fair values, determine assumed-liability treatment, or settle either party's tax consequences. An allocation must follow the applicable tax framework and supported values, not merely balance to a negotiated price.
Worked solution: The seller may face an indefinite restriction controlled by a process it cannot manage. Specify duration, start date, covered conduct, information-delivery assumptions, milestones, extensions, termination rights, and legal status. The appropriate remedy and enforceability require counsel's drafting; a textbook should not assume a universal deadline or penalty.
Worked solution: Treat the proposal as potential contingent seller consideration rather than assume the consulting label makes it eligible. Current acquisition rules prohibit seller earnouts. Remove or restructure the term through lender and counsel review, and compensate only genuine supported services under permitted conditions. Do not insert the bonus into a purportedly compliant base case.
Worked solution: Assumed-liability provisions and applicable successor or statutory rules can expose an asset buyer despite exclusions. Review inspection history, tax, employment, contracts, insurance, and relevant local law. Seek evidence, consents, tailored indemnity, and coverage where appropriate. Contractual recourse against the seller and the ability of a third party to assert a claim are different questions.