In the acquisition of the Sanchez Company, Medina Inc. acquired a customer list and a franchise agreement. Medina used the expected cash flow approach for estimating the fair value of these two intangibles. The appropriate interest rate is 8%. The potential future cash flows from these intangibles are as follows:

Customer List: Outcome 1-- 20% probability of $45,000 cash flows at the end of the year for 5 years Outcome 2-- 30% probability of $19,000 cash flows at the end of the year for 4 years Outcome 3-- 50% probability of $10,000 cash flows at the end of each year for 4 years Franchise agreement: Outcome 1-- 10% probability of $475,000 cash flows at the end of the year for 10 years Outcome 2-- 25% probability of $17,000 cash flows at the end of the year for 5 years Outcome 3-- 65% probability of $3,000 cash flows at the end of each year for 3 years

4a. Using the expected cash flow approach, determine the fair value of each intangible asset.

4b. If these amounts were to be used in the negotiation of the sale of Sanchez Company to Medina, Sanchez would argue for higher or lower values for probabilities, cash flows, and # of years? What about for Medina?