Question

At the end of 2020, Sunland 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 Sunland’s production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Sunland’s accountants have developed the following cash flow information for the equipment.

Year		Net Cash Flow Estimate				Probability Assessment
2021		$6,360				40%
		8,480				60%
2022		$(470	)			20%
		2,080				60%
		3,710				20%
		Scrap value
2022		$450				50%
		920				50%

Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2020. Use a 6% discount rate. Assume all cash flows occur at the end of the year. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Fair value of the machinery at the end of 2020?

Answer 1