Noble Limited estimated that it would receive future cash flows from the use of equipment as follows: End of Year 1 $20 000
End of Year 2 $70 000
End of Year 3 $40 000
End of Year 4 $30 000
The discount rate was determined as 5%. The 'value in use' of the equipment is:

Question

Quizplus · Accepted Answer

The 'value in use' is calculated by discounting the future cash flows at the given discount rate. The present value of each cash flow is calculated and summed up:  Year 1: $20,000 / (1+0.05)^1 = $19,048  Year 2: $70,000 / (1+0.05)^2 = $63,492  Year 3: $40,000 / (1+0.05)^3 = $34,576  Year 4: $30,000 / (1+0.05)^4 = $24,658  Total = $141,774

Noble Limited Estimated That It Would Receive Future Cash Flows