At the end of 2007, 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 secondhand 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
2008 $6,000 40%
2009 ($500) 20%
2009 $500 50%
Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2007. Use a 6% discount rate. Assume all cash flows occur at the end of the year.© BrainMass Inc. brainmass.com June 4, 2020, 2:18 am ad1c9bdddf
This solution contains step-by-step calculations in an Excel file to determine the fair value of the machinery at the end of 2007 using expected cash flow and present value techniques.