CH6_PVCashFlowEstimate - flow and present value techniques...

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Ch. 6 Example Ozzie Electronics sells high-end plasma TVs and offers a 3-year warranty on all new TVs sold.  Ozzie has entered into an agreement with Electronic Service Labs to provide all warranty  services on the 95 TVs sold in 2006.  The controller for  Ozzie estimates the following expected  warranty cash outflow associated with the TVs sold in 2006. Cash Flow Estimate Probability Assessment 2007 $20,000 30,000 40,000 20% 60% 20% 2008 $25,000 30,000 45,000 30% 50% 20% 2009 $30,000 45,000 60,000 20% 40% 40% Instructions Determine the fair value of the warranty liability for the sales made in 2006.  Use expected cash 
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Unformatted text preview: flow and present value techniques. Use an annual discount rate of 6%. Cash Flow Estimate X Probability Assessment= Expected Cash Flow Cash Flow Estimate Probability Assessment Expected Cash Flow 2007 $20,000 30,000 40,000 20% 60% 20% $4,000 18,000 8,000 $30,000 X PV Factor, n=1, I=6% .94340 Present Value $28,302.00 2008 $25,000 30,000 45,000 30% 50% 20% $7,500 15,000 9,000 $31,500 X PV Factor, n=2, I=6% .89000 Present Value $28,035.00 2009 $30,000 20% $6,000 X PV Factor, Present 45,000 60,000 40% 40% 18,000 24,000 $48,000 n=3, I=6% .83962 Value $40,301.76 Total Estimated Liability= $96,638.76...
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