In its 1994 monograph on future events, the FASB discussed several orientations that might be related to asset valuation. As an example of its thinking, assume that we are assessing future sales of a product for the purpose of determining the value of the asset which is used to manufacture the product. The product is expected to sell for $25 per unit. Probability and unit sales are shown here.
ProbabilityEstimated Sales
.45……………. 0
.10…………….5,000
.30…………….6,000
.15…………….8,000
Required:
Part 1: Determine (a) the modal (most likely individual unit sales), (b) the cumulative probability (summed probability of sales being either positive or negative), and (c) the weighted probability number (expected value of probability times estimated sales times sales price).
Part 2: How might these approaches be utilized to value the asset which is used to manufacture the product?