McRoy Company owns a trade name that was purchased in an acquisition of Creation Company. The trade name has a book value of $3\mathrm{.}5$ million, but according to IFRS, it is assessed for impairment on an annual basis. It has developed the cash flow estimates related to the trade name based on internal infromation. These cash flows are provided below. Each cash flow estimate reflects McrRoy's estimate of annual cash flows over the next eight years. The trade name is assumed to have no salvage value after the eight years. $($Assume the cash flows occur at the end of each year.$)$ Cash flow estimate: $380000,630000,750000.$ Probability assessment $20\%,50\%,30\%$ respectively. a$.$ Calculate the estimated fair value of the trade name? McRoy uses a $8\%$ discount rate. b$.$ Is the estimate developed for part a$.$ a level $1,$ level $2,$ or level $3$ fair value estimate? Explain.

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a To calculate the estimated fair value of the trade name we need to discount the cash flows at a ra... View the full answer