At the end of 2008, Richards Company is conducting an impairment test and needs to develop a

Question:

At the end of 2008, Richards 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 Richard’s production process, the equipment is for special use. (No second-hand market values are available.) The equipment will be obsolete in 2 years, and Richard’s accountants have developed the following cash flow information for the equipment.

Net Cash Flow Probability Year Estimate Assessment 2009 $6,000 40% 8,000 60% 2010 $ (500) 20% 2,000 60% 3,000 20% Scrap value 2010 $ 500 50% 700 50%


Instructions

Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2008. Use a 6% discount rate. Assume all cash flows occur at the end of the year.

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Related Book For  book-img-for-question

Intermediate Accounting principles and analysis

ISBN: 978-0471737933

2nd Edition

Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso

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