Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Students have asked these similar questions
Sandhill Industries has several assets as part of a cash, generating unit that have limited use due to changing market trends and
declining demand for the product produced by these assets. Management estimates that the carrying value of these assets is $86600
and the assets have no other use. The company intends on producing this product for three more years prior to disposing of the assets.
The net future cash flows related to the product production and sale of the equipment is $87600, while the present value of the cash
flows is $81950. The fair value less the cost of disposal of the assets is estimated at $71300. What is the value of the impairment loss
under the rational entity model?
O $0, there is no impairment loss
O $4650
O $15300
O $5450
Vandezande Inc. is considering the acquisition of a new machine that costs $370,000 and has a useful life of 5 years with no salvage value. The cash flows that would be produced by the machine are (Ignore income taxes):
Net Cash Flows
Year 1
$
128,000
Year 2
$
105,000
Year 3
$
126,000
Year 4
$
123,000
Year 5
$
122,000
Assume cash flows occur uniformly throughout a year except for the initial investment.
The payback period of this investment is closest to:
Yuan Inc. has a large piece of machinery, and management has determined there is potential impairment. This piece of machinery has
independent cash inflows. The following information relates to the machine:
• Net book value is $18 million.
• The machine could be sold for $10 million less a 11% commission.
• If the company was forced to sell immediately, the proceeds would likely be $8 million.
• If the machine continues to be used in production, it is anticipated to generate $4 million of cash flows for the next five years. It
would require annual maintenance costs of $300,000 a year. The equipment could be sold for $100,000 at the end of the five
years.
• Assume Yuan has a discount rate of 9%.
(PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided. Round time value factor to 5 decimal
places.)
Required:
Is the machine impaired?
O Yes O
O No
If so, what is the amount of the impairment loss? (Enter answer in whole dollars, not in million.)
Chapter 8 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
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