Reference no: EM132465197

Problem 1: Assume that Picnic Paper Co. has several minor lawsuits outstanding. To determine the amount of liability to recognize on the statement of financial position, Picnic decides to use expected cash flow techniques.

Based on discussions with their lawyers, Picnic has developed the following cash flow estimates, and related probabilities:

Year                             Cash Flow Estimate                       Probability Assessment

2020                                   $2,300                                 30%

                                          $4,500                                  45%

                                          $8,200                                  25%

2021                                   $3,200                                  20%

                                          $5,400                                  50%

                                         $7,100                                   30%

Question 1: Based on these estimates, and assuming a risk-free rate of 5%, what is the present value of expected cash flows that Picnic should record on their statement of financial position for 2020?