Instructor key — Module 5: Working Capital Pegs, Escrows, Holdbacks, and Closing Mechanics
Instructor/solutions version. Keep separate from the student assignment during assessment.
Calculation solution
Peg is $360,000; estimated NWC $340,000; final NWC $315,000. Calculate incremental post-close settlement.
Calculated result: -25,000.00000000 (actual USD, except where the question requests a ratio or return). Total shortage $45,000 less $20,000 already charged gives another $25,000 from seller. 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: The average is $420,000. The adjustment is $390,000 − $420,000 = negative $30,000. Estimated consideration is $3.77 million. The target's economic appropriateness still requires seasonality and operating evidence; arithmetic alone does not establish that an average is the right peg.
Worked solution: Total final adjustment is negative $80,000. Subtracting the estimated negative $30,000 gives another $50,000 payable to the buyer. From the $100,000 adjustment escrow, $50,000 goes to the buyer and $50,000 to the seller, ignoring fees and interest. The full final shortage is not deducted a second time.
Worked solution: Deductible recovery is $45,000. Under the stipulated tipping design, recovery is $70,000 once the threshold is exceeded. The agreement must state which mechanism applies. A label alone does not tell the buyer what money it can recover.
Worked solution: Remaining indemnity release is $145,000. Total cash is $3.18 million + $50,000 + $145,000 = $3.375 million. Add the $300,000 note for $3.675 million total. This equals final adjusted consideration of $3.72 million less $45,000 indemnity recovery. Timing, taxes, and credit risk can reduce the seller's economic value further.
Worked solution: The known dispute remains outside the quoted coverage, so insurance does not replace protection for it. Assess coverage for other unknown breaches separately and negotiate treatment of the known exposure through evidence, price, escrow, or a tailored indemnity. Do not count the premium as buying protection the policy expressly excludes.