An entity is the defendant in a patent infringement lawsuit. The entity’s lawyers believe there is a 30% chance that the court will dismiss the case and the entity will incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the lawyers believe that there is a 20% chance that the entity will be required to pay damages of ₱800,000 (the amount sought by the claimant) and an 80% chance that the entity will be required to pay damages of ₱400,000 (the amount that was recently awarded by the same judge in a similar case). Other outcomes are unlikely. The court is expected to rule in late December 20x2. There is no indication that the claimant will settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 10% per year. How much is the provision for lawsuit at December 31, 20x1? a. 436,360 b. 446,908 c. 326,836 d. 0
An entity is the defendant in a patent infringement lawsuit. The entity’s lawyers believe there is a
30% chance that the court will dismiss the case and the entity will incur no outflow of economic
benefits. However, if the court rules in favor of the claimant, the lawyers believe that there is a
20% chance that the entity will be required to pay damages of ₱800,000 (the amount sought by
the claimant) and an 80% chance that the entity will be required to pay damages of ₱400,000
(the amount that was recently awarded by the same judge in a similar case). Other outcomes are
unlikely.
The court is expected to rule in late December 20x2. There is no indication that the claimant will
settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is
considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate
discount rate is 10% per year. How much is the provision for lawsuit at December 31, 20x1?
a. 436,360 b. 446,908 c. 326,836 d. 0
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