At the end of 2014, Sawyer 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 Sawyer's production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Sawyer's accountants have developed the following cash flow information for the equipment.

Instructions
Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2014. Use a 6% discount rate. Assume all cash flows occur at the end of the year?

Transcribed Image Text:

Net Cash Flow Probability Assessment Year Estimate $6,000 9,000 40% 60% 2015 $ (500) 2,000 2016 20% 60% 20% 4,000 Scrap value $ 500 50% 2016 50% 900