Assume that Jimmy's Submarine Ltd. has several minor lawsuitsoutstanding. To determine the amount of...

60.1K

Verified Solution

Question

Accounting

Assume that Jimmy's Submarine Ltd. has several minor lawsuitsoutstanding. To determine the amount of liability to recognize onthe statement of financial position, Jimmy decides to use expectedcash flow techniques. Based on dicussions with their lawyers, Jimmyhas developed the following cash flow estimates, and relatedprobabilities:
Year Cash Flow Estimate Probability Assignment
2017 $2,300 30%
$4,500 45%
$8,200 25%
2018 $3,200 20%
$5,400 50%
$7,100 30%
Required: Based on these estimates, andassuming a risk free rate of 5%, what is the present value ofexpected cash flows which picnic should record on their statementof financial position for 2017?

Answer & Explanation Solved by verified expert

3.6 Ratings (522 Votes)

Calculation of expected cash flow during 2017 Cash flow estimate i Probability ii Expected cash flow i x ii 2300 30 2300 x 30 690 4500 45 4500 x 45 2025 8200 25 See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingAssume that Jimmy's Submarine Ltd. has several minor lawsuitsoutstanding. To determine the amount of liability...Assume that Jimmy's Submarine Ltd. has several minor lawsuitsoutstanding. To determine the amount of liability to recognize onthe statement of financial position, Jimmy decides to use expectedcash flow techniques. Based on dicussions with their lawyers, Jimmyhas developed the following cash flow estimates, and relatedprobabilities:YearCash Flow EstimateProbability Assignment2017$2,30030%$4,50045%$8,20025%2018$3,20020%$5,40050%$7,10030%Required: Based on these estimates, andassuming a risk free rate of 5%, what is the present value ofexpected cash flows which picnic should record on their statementof financial position for 2017?

Year	Cash Flow Estimate	Probability Assignment
2017	$2,300	30%
	$4,500	45%
	$8,200	25%

2018	$3,200	20%
	$5,400	50%
	$7,100	30%