Hello Company owns equipment that was purchased in an acquisition of ABC Company. The equipment has a book value of $1,820,000. It must be assessed for impairment on an annual basis. As part of this test, Hello needs to estimate the value in use of the equipment. It has developed the following cash flow estimates related to the equipment. Each estimate reflects annual cash flows over the next 7 years. The equipment is assumed to have no residual value, and cash flows occur at the end of each year.
Hello determines that the appropriate discount rate for these cash flows is 9%. Estimate the value in use of the equipment
year | cash-flow Estimate |
1-3 | $ 220,000 |
4-6 | $ 340,000 |
7 | $ 400,000 |
Hence, present value of the estimate is $1,440,270.66
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