Hood Company owns specialized equipment that was purchased in an acquisition of Riding Company. The equipment has a book value of $1,800,000, but according to IFRS 13, it is assessed for impairment on an annual basis. To perform this impairment test, Hood must estimate the value of the equipment, comparing the Fair Market Value (value if we sold now) to a value-in-use model (income-based if we keep the asset). It has determined the cash flow estimates related to the equipment based on internal information for the next 7 years to be $165,000 per year. The equipment is assumed to have $50,000 residual value after the 7 years. (Assume the cash flows occur at the end of each year.). Hood company could sell the equipment today for $1,500,000.

a) Hood determines, using their own assumptions, that the appropriate discount rate for this estimation is 6%. To the nearest dollar, what is the estimated value in use using the income based model? (3 marks)

b) Comparing the Fair Market Value to the Value in Use, should Hood Keep the equipment or sell the equipment? Why? (2 marks)