A company reporting under US GAAP has production facilities with a net book value of $28.4 million. Recently, several competitors have entered its market, and the company now estimates that its production facilities will be able to generate cash flows of only $3 million per year for the next seven years. The firm has a cost of capital of 10%.
Based on these recent events related to its production facilities, the company’s financial statements will most likely report a:
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A.
$13.8 million reduction in operating cash flows.
B.
$13.8 million impairment loss on the income statement.
C.
$7.4 million reduction in the balance sheet carrying amount.
$13.8 million reduction in operating cash flows.
B.
$13.8 million impairment loss on the income statement.
C.
$7.4 million reduction in the balance sheet carrying amount.
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