accounting ice
Your firm is Barrett & Blackstone LLP.
The following table presents management’s estimate of future cash flows from each of the possible courses of action.
A. Continue operating the ship in the current area.
B. Operate the ship in a new pirate-free area.
C. Operate the ship in the current area through December 31, 2015 then turn the ship over to the lender (have the lender foreclose on the ship).
Estimated Future Cash Inflows – Undiscounted
(in $ millions)
Option
Probability of Occurring
2016
2017
2018
2019
2020
Total
Probability
Weighted
A
10%
$1.0
$.9
$.7
$.7
$.7
$4.0
B
20%
.6
.8
1.1
1.6
1.9
6.0
C
70%
$1.0
$3.0[1]
$0
$0
$0
$4.0
Total
[1] Includes the ship’s FMV of $3 million treated as forgiveness of debt associated with the foreclosure up to FMV of the asset.
