Describe the discounted cash flow approach and analyze the underlying assumptions made by the companies while ascertaining the Level 3 fair value estimates using this approach.

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Answer 1

Question

Chapter C11, Problem 1DQ

To determine

Describe the discounted cash flow approach and analyze the underlying assumptions made by the companies while ascertaining the Level 3 fair value estimates using this approach.

Expert Solution & Answer

Explanation of Solution

Discounted cash flow approach: The discounted cash flow approach compares the initial cash outflow with the present value of the cash inflow.

Level 3 assets: The Level 3 asset refers to the fair-value asset possessing one or more unobservable measures of value.

The evaluation of the value of Level 3 asset:

To Level 3 assets are generally evaluated through discounted cash flow method.
The company at times projects the future cash flow as well as their discounted rates, to estimate the value of the assets.

The assumptions underlying this approach are:

The future cash flow is not known.
Presence of the risk of default.
Application of the discount rate is difficult to estimate.
Prominence of future cash flows and default rate is a significant estimate.
Difficulty in understanding risk component.

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Answer 2

Question

Chapter C11, Problem 1DQ

To determine

Describe the discounted cash flow approach and analyze the underlying assumptions made by the companies while ascertaining the Level 3 fair value estimates using this approach.

Expert Solution & Answer

Explanation of Solution

Discounted cash flow approach: The discounted cash flow approach compares the initial cash outflow with the present value of the cash inflow.

Level 3 assets: The Level 3 asset refers to the fair-value asset possessing one or more unobservable measures of value.

The evaluation of the value of Level 3 asset:

To Level 3 assets are generally evaluated through discounted cash flow method.
The company at times projects the future cash flow as well as their discounted rates, to estimate the value of the assets.

The assumptions underlying this approach are:

The future cash flow is not known.
Presence of the risk of default.
Application of the discount rate is difficult to estimate.
Prominence of future cash flows and default rate is a significant estimate.
Difficulty in understanding risk component.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter C11, Problem 1DQ

To determine

Describe the discounted cash flow approach and analyze the underlying assumptions made by the companies while ascertaining the Level 3 fair value estimates using this approach.

Expert Solution & Answer

Explanation of Solution

Discounted cash flow approach: The discounted cash flow approach compares the initial cash outflow with the present value of the cash inflow.

Level 3 assets: The Level 3 asset refers to the fair-value asset possessing one or more unobservable measures of value.

The evaluation of the value of Level 3 asset:

To Level 3 assets are generally evaluated through discounted cash flow method.
The company at times projects the future cash flow as well as their discounted rates, to estimate the value of the assets.

The assumptions underlying this approach are:

The future cash flow is not known.
Presence of the risk of default.
Application of the discount rate is difficult to estimate.
Prominence of future cash flows and default rate is a significant estimate.
Difficulty in understanding risk component.

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Answer 4

Question

Chapter C11, Problem 1DQ

To determine

Describe the discounted cash flow approach and analyze the underlying assumptions made by the companies while ascertaining the Level 3 fair value estimates using this approach.

Expert Solution & Answer

Explanation of Solution

Discounted cash flow approach: The discounted cash flow approach compares the initial cash outflow with the present value of the cash inflow.

Level 3 assets: The Level 3 asset refers to the fair-value asset possessing one or more unobservable measures of value.

The evaluation of the value of Level 3 asset:

To Level 3 assets are generally evaluated through discounted cash flow method.
The company at times projects the future cash flow as well as their discounted rates, to estimate the value of the assets.

The assumptions underlying this approach are:

The future cash flow is not known.
Presence of the risk of default.
Application of the discount rate is difficult to estimate.
Prominence of future cash flows and default rate is a significant estimate.
Difficulty in understanding risk component.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter C11, Problem 1DQ

To determine

Describe the discounted cash flow approach and analyze the underlying assumptions made by the companies while ascertaining the Level 3 fair value estimates using this approach.

Expert Solution & Answer

Explanation of Solution

Discounted cash flow approach: The discounted cash flow approach compares the initial cash outflow with the present value of the cash inflow.

Level 3 assets: The Level 3 asset refers to the fair-value asset possessing one or more unobservable measures of value.

The evaluation of the value of Level 3 asset:

To Level 3 assets are generally evaluated through discounted cash flow method.
The company at times projects the future cash flow as well as their discounted rates, to estimate the value of the assets.

The assumptions underlying this approach are:

The future cash flow is not known.
Presence of the risk of default.
Application of the discount rate is difficult to estimate.
Prominence of future cash flows and default rate is a significant estimate.
Difficulty in understanding risk component.

Answer 6

Chapter C11, Problem 1DQ

To determine

Describe the discounted cash flow approach and analyze the underlying assumptions made by the companies while ascertaining the Level 3 fair value estimates using this approach.

Expert Solution & Answer

Explanation of Solution

Discounted cash flow approach: The discounted cash flow approach compares the initial cash outflow with the present value of the cash inflow.

Level 3 assets: The Level 3 asset refers to the fair-value asset possessing one or more unobservable measures of value.

The evaluation of the value of Level 3 asset:

To Level 3 assets are generally evaluated through discounted cash flow method.
The company at times projects the future cash flow as well as their discounted rates, to estimate the value of the assets.

The assumptions underlying this approach are:

The future cash flow is not known.
Presence of the risk of default.
Application of the discount rate is difficult to estimate.
Prominence of future cash flows and default rate is a significant estimate.
Difficulty in understanding risk component.

Answer 7

Chapter C11, Problem 1DQ

To determine

Describe the discounted cash flow approach and analyze the underlying assumptions made by the companies while ascertaining the Level 3 fair value estimates using this approach.

Answer 8

Expert Solution & Answer

Explanation of Solution

Discounted cash flow approach: The discounted cash flow approach compares the initial cash outflow with the present value of the cash inflow.

Level 3 assets: The Level 3 asset refers to the fair-value asset possessing one or more unobservable measures of value.

The evaluation of the value of Level 3 asset:

To Level 3 assets are generally evaluated through discounted cash flow method.
The company at times projects the future cash flow as well as their discounted rates, to estimate the value of the assets.

The assumptions underlying this approach are: