easy · Private Equity & LBOs
How does the 'Fair Value' adjustment of a target's existing debt affect Goodwill if the debt is assumed (not refinanced) and its market rate is higher than its book rate?
- It is ignored because debt is a financing choice, not an operating asset.
- It increases the fair value of the debt, which increases Goodwill.
- It reduces the fair value of the debt liability, which increases net assets and decreases Goodwill.
- Debt is always recorded at face value in PPA, regardless of market rates.
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