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Essentials Of Investments
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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Cullumber Repairs Ltd. has several minor lawsuits outstanding on December 31, 2019. To determine the amount of liability to recognize on the statement of financial position, Cullumber decides to use expected cash flow techniques. Based on discussions with the company's lawyers, Cullumber estimates the expected cash outflows associated with the lawsuits, as shown below. Cash Flow Probability Expected Estimate x Assessment = Cash Flow 2020 $ 5,500 60% $ 3,300 8,400 40% 3,360 Total $6,660 2021 $ 5,300 30% $ 1,590 7,200 60% 4,320 8,900 10% 890 Total $6,800 Calculate the present value of the lawsuits assuming a risk-free rate of 6% and cash flows occurring at the end of the year. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answer to 2 decimal places, e.g. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Present value %24
Transcribed Image Text:Cullumber Repairs Ltd. has several minor lawsuits outstanding on December 31, 2019. To determine the amount of liability to recognize on the statement of financial position, Cullumber decides to use expected cash flow techniques. Based on discussions with the company's lawyers, Cullumber estimates the expected cash outflows associated with the lawsuits, as shown below. Cash Flow Probability Expected Estimate x Assessment = Cash Flow 2020 $ 5,500 60% $ 3,300 8,400 40% 3,360 Total $6,660 2021 $ 5,300 30% $ 1,590 7,200 60% 4,320 8,900 10% 890 Total $6,800 Calculate the present value of the lawsuits assuming a risk-free rate of 6% and cash flows occurring at the end of the year. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answer to 2 decimal places, e.g. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Present value %24
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