What is the estimated fair value of the equipment

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Question - Hood Company owns specialized equipment that was purchased in an acquisition of Riding Company. The equipment has a book value of $1,800,000, but according to IFRS, it is assessed for impairment on an annual basis. To perform this impairment test, Hood must estimate the fair value of the equipment. It has developed the following cash flow estimates related to the equipment based on internal information. Each cash flow estimate reflects Hood's estimate of annual cash flows over the next 7 years. The equipment is assumed to have no residual value after the 7 years. (Assume the cash flows occur at the end of each year.)

Year

Cash Flow Estimate

1

$425,000

2-4

$240,000

5-7

365,000

Hood determines, using their own assumptions, that the appropriate discount rate for this estimation is 5%. To the nearest dollar, what is the estimated fair value of the equipment?

Reference no: EM133127413

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