Carla Vista Co. owns a trade name that was purchased in an acquisition of Wildhorse Co.....

Carla Vista Co. owns a trade name that was purchased in an acquisition of Wildhorse Co.. The trade name has a book value of $3,500,000, but according to IFRS, it is assessed for impairment on an annual basis. To perform this impairment test, Carla Vista must estimate the fair value of the trade name (using IFRS 13). It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Carla Vista’s estimate of annual cash flows over the next 10 years. The trade name is assumed to have no salvage value after the 10 years. (Assume the cash flows occur at the end of each year.)

Cash Flow Estimate	Probability Assessment
$387,500	20	%
631,500	50	%
745,000	30	%

Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

(a)

What is the estimated fair value of the trade name? Carla Vista determines that the appropriate discount rate for this estimation is 10%. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answer to 0 decimal places, e.g. 5,275.)

Estimated fair value

$Enter your answer in accordance to the question statement

Expert Solution

Answer

Cash flow estimate	Probability	Probable Cash flow
$ 387,500	20%	$ 77,500
$ 631,500	50%	$ 315,750
$ 745,000	30%	$ 223,500
Total		$ 616,750

Cash flow estimate	$ 616,750.00
X PV factor	6.144567106	(1-(1.10)^-10)/0.10
Estimated fair value	$ 3,789,662

ekkarill92 answered 1 year ago

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