The following four investment cases are missing the value of one key argument. Solve for the unknown
Question:
The following four investment cases are missing the value of one key argument. Solve for the unknown argument in each separate case. Assume interest is compounded annually
Investment 1 | Investment 2 | Investment 3 | Investment 4 | ||||||
---|---|---|---|---|---|---|---|---|---|
RATE | (a) | ?? | 6% | 6% | 5% | ||||
NPER | 8 | (b) | ?? | 4 | 3 | ||||
PV | $(16,000) | $(15,468) | (c) | ?? | $(20,000) | ||||
FV | $24,000 | $20,700 | $7,800 | (d) | ?? |
Expected Cash Flow Technique
Laurel Inc. is estimating legal costs related to an environmental remediation anticipated in 10 years. Due to uncertainties related to legal services required at that time, the company prepared the following estimates.
Legal Cash Outflow | Probability |
---|---|
$500,000 | 40% |
400,000 | 30% |
200,000 | 20% |
100,000 | 10% |
a. Compute the expected cash outflow for legal costs.
b. Assuming a 4% risk-free rate, determine the fair value measurement of the remediation liability using the expected cash flow technique, discounting expected cash flows using a risk-free rate.
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson