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What is the present value of expected cash flows

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Question - 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

$7,000

25%

$8,500

40%

$18,400

35%



2021

$6,000

25%

$12,800

45%

$16,200

30%

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?

Reference no: EM133113400

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