Assume that Crusher Co. has several minor lawsuits outstanding. To determine the amount of liability to recognize on the statement of financial position, Crusher decides to use expected cash flow techniques. Based on discussions with their lawyers, Crusher has developed the following cash flow estimates, and related probabilities:YearCash Flow EstimateProbability Assessment2021$2,30030% $4,50045% $8,20025%2022$3,20020% $5,40050% $7,10030% Required: 1) Based on these estimates, and assuming a risk-free rate of 5%, what is the present value of expected cash flows that Crusher should record on their statement of financial position for 2021?

Step 1: Calculate the expected cash flow for 2021 using probability-weighted averages:• Multiply…

Answered: Assume that Crusher Co. has several…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Assume that Crusher Co. has several minor lawsuits outstanding. To determine the amount of liability to recognize on the statement of financial position, Crusher decides to use expected cash flow techniques. Based on discussions with their lawyers, Crusher has developed the following cash flow estimates, and related probabilities:

Year	Cash Flow Estimate	Probability Assessment
2021	$2,300	30%
	$4,500	45%
	$8,200	25%
2022	$3,200	20%
	$5,400	50%
	$7,100	30%

Required:

1) Based on these estimates, and assuming a risk-free rate of 5%, what is the present value of expected cash flows that Crusher should record on their statement of financial position for 2021?

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