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lable.) The equipment will be obsolete in 2 years, and Nash's accountants have developed the following the equipment. Cash Flow Probability

lable.) The equipment will be obsolete in 2 years, and Nash's accountants have developed the following the equipment. Cash Flow Probability

FINANCIAL ACCOUNTING
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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At the end of 2020, Nash 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 Nash's production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Nash's accountants have developed the following cash flow information for the equipment. Year 2021 2022 2022 Net Cash Flow Estimate $5,710 8,920 $(470) 2,000 3,980 Scrap value $490 870 Probability Assessment Click here to view factor tables 40% 60% 20% 60% 20% 50% 50% 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.)
Transcribed Image Text:At the end of 2020, Nash 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 Nash's production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Nash's accountants have developed the following cash flow information for the equipment. Year 2021 2022 2022 Net Cash Flow Estimate $5,710 8,920 $(470) 2,000 3,980 Scrap value $490 870 Probability Assessment Click here to view factor tables 40% 60% 20% 60% 20% 50% 50% 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.)
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