At the end of 2020, Wildhorse 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 Wildhorse's production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Wildhorse's accountants have developed the following cash flow information for the equipment. Year 2021 2022 2022 Net Cash Flow Estimate $6,070 9,490 $(540) 2,020 4,220 Scrap value $540 960 Probability Assessment 40% 60% 20% 60% 20% 50% 50% Click here to view factor tables Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2020. Use a 5% 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 $ 10379
At the end of 2020, Wildhorse 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 Wildhorse's production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Wildhorse's accountants have developed the following cash flow information for the equipment. Year 2021 2022 2022 Net Cash Flow Estimate $6,070 9,490 $(540) 2,020 4,220 Scrap value $540 960 Probability Assessment 40% 60% 20% 60% 20% 50% 50% Click here to view factor tables Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2020. Use a 5% 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 $ 10379
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:At the end of 2020, Wildhorse 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 Wildhorse's production process, the equipment is for special use. (No
secondhand market values are available.) The equipment will be obsolete in 2 years, and Wildhorse's accountants have developed the
following cash flow information for the equipment.
Year
2021
2022
2022
Net Cash Flow
Estimate
$6,070
9,490
$(540)
2,020
4,220
Scrap value
$540
960
Probability
Assessment
40%
60%
20%
60%
20%
50%
50%
Click here to view factor tables
Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2020. Use a 5%
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
$
+A
10379
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