Answered: Use the information for the next two…

Use the information for the next two (2) questions. During 2020, Wasp Company 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 P200,000 and an 80% chance that the entity will be required to pay damages of P100,000. Other outcomes are unlikely.

The court is expected to rule in late December 2022. 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 5% per year. The present value of 1 at 5% for one period is 0.95 and for two periods is 0.91.

What is the amount of undiscounted cash flows for the provision?

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