At the end of 2020, Tamarisk Company is conducting an impairment test and needs to develop a fair value estimate for machinery use in its manufacturing operations. Given the nature of Tamarisk's production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Tamarisk's accountants have developed the following cash flow information for the equipment. Year 2021 2022 Net Cash Flow Estimate $5,790 8,540 $(460) 1,970 4,190 Scrap value Probability Assessment 40% 60% 20% 60% 20%
At the end of 2020, Tamarisk Company is conducting an impairment test and needs to develop a fair value estimate for machinery use in its manufacturing operations. Given the nature of Tamarisk's production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Tamarisk's accountants have developed the following cash flow information for the equipment. Year 2021 2022 Net Cash Flow Estimate $5,790 8,540 $(460) 1,970 4,190 Scrap value Probability Assessment 40% 60% 20% 60% 20%
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:At the end of 2020, Tamarisk Company is conducting an impairment test and needs to develop a fair value estimate for machinery used
in its manufacturing operations. Given the nature of Tamarisk's production process, the equipment is for special use. (No secondhand
market values are available.) The equipment will be obsolete in 2 years, and Tamarisk's accountants have developed the following cash
flow information for the equipment.
Year
2021
2022
Net Cash Flow
Estimate
$5,790
8,540
$(460)
1,970
4,190
Scrap value
Probability
Assessment
40%
60%
20%
60%
20%
Transcribed Image Text:2022
Scrap value
$540
850
Click here to view factor tables
50%
50%
Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2020. Use a 6%
discount rate. Assume all cash flows occur at the end of the year. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to
O decimal places, e.g. 458,581.)
Fair value of the machinery at the end of 2020 $
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