Question

Medtech Electronics sells a diagnostic machine to a hospital with a four-year payment plan. The company would like to estimate the bad debt allowance needed to cover the notes outstanding over the next four years Estimated lost cash flows and the probability of occurrence for each of the next four years are summarized in the following schedule. The risk-free rate is 6%. (Click the icon to view the schedule.) Requirement What is the estimated bad debt allowance? Begin by computing the estimated cash flow loss each year. Enter all amounts as positive amounts.) i Data Table Year 2016 Projected Cash Flow Loss from Uncollected Notes $ 10,000 15,000 Probability of Loss Occurring 70% 2017 $ 6,000 25,000 60,000 40001 Projected Cash Flow Expected Loss from Uncollected Probability of Cash Flow Year Notes Loss Occurring Loss 2016 $ 10,000 70 % 7000 15,000 30% 45001 115001 Total expected cash flow loss in 2016 2017 $ 6,000 5% 300 25,000 45% 11250 60,000 50% 30000 4575501 Total expected cash flow loss in 2017 - 2018 $ 7.000 60% 4200 10,000 40% 82001 Total expected cash flow loss in 2018 - 2019 $ 21,000 60% 12600 30,000 40% 12000 246001 Total expected cash flow loss in 2019 Now compute the estimated bad debt allowance for each year and the total. (Use the present value and future value tables, Estimated Bad Debt Allowance 2016 2017 2018 2019 Total 2018 $ 7,000 10,000 2019 $ 21,000 30,000 60% lculations. If using fu Print Done Year

Answer 1

Compute estimated bad debt allowance for each year and the total

Year	Estimated bad debt allowance
2016	11500
2017	41550
2018	8200
2019	24600
Total	85850