Current Attempt in Progress Sarasota Company owns a trade name that was purchased in an acquisition of McClellan Company. The trade name has a book value of $3,500,000, but according to GAAP, it is assessed for impairment on an annual basis. To perform this impairment test, Sarasota must estimate the fair value of the trade name. It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Sarasota's estimate of annual cash flows over the next 9 years. The trade name is assumed to have no salvage value after the 9 years. (Assume the cash flows occur at the end of each year) Cash Flow Estimate Probability Assessment $380,600 646,900 768,300 20% 50% Estimated fair value $ 30% Click here to view factor tables. (a) What is the estimated fair value of the trade name? Sarasota determines that the appropriate discount rate for this estimation is 9%. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, eg. 458,581)
Current Attempt in Progress Sarasota Company owns a trade name that was purchased in an acquisition of McClellan Company. The trade name has a book value of $3,500,000, but according to GAAP, it is assessed for impairment on an annual basis. To perform this impairment test, Sarasota must estimate the fair value of the trade name. It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Sarasota's estimate of annual cash flows over the next 9 years. The trade name is assumed to have no salvage value after the 9 years. (Assume the cash flows occur at the end of each year) Cash Flow Estimate Probability Assessment $380,600 646,900 768,300 20% 50% Estimated fair value $ 30% Click here to view factor tables. (a) What is the estimated fair value of the trade name? Sarasota determines that the appropriate discount rate for this estimation is 9%. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, eg. 458,581)
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
Problem 1PS
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Transcribed Image Text:Current Attempt in Progress
Sarasota Company owns a trade name that was purchased in an acquisition of McClellan Company. The trade name has a book value of
$3,500,000, but according to GAAP, it is assessed for impairment on an annual basis. To perform this impairment test, Sarasota must
estimate the fair value of the trade name. It has developed the following cash flow estimates related to the trade name based on
internal information. Each cash flow estimate reflects Sarasota's estimate of annual cash flows over the next 9 years. The trade name is
assumed to have no salvage value after the 9 years. (Assume the cash flows occur at the end of each year)
Probability Assessment
Cash Flow Estimate
$380,600
646,900
768,300
Click here to view factor tables.
20%
Estimated fair value $
50%
30%
(a) What is the estimated fair value of the trade name? Sarasota determines that the appropriate discount rate for this estimation
is 9%. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, eg. 458,581)
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