A Case Study of a Cruise Ship

• What impact should the potential foreclosure and extinguishment of debt have on the cash flows used to perform the recoverability test?

By discounting back the free cash flows (FCF) for each year would allow use to see if this

2. The knowledge is helpful to present potential investors, creditors and others in assessing the amounts, timings, and uncertainty of future cash flows,

We will discuss whether the Company’s approach for testing goodwill for impairment after recognizing an impairment charge related to a long-lived asset group classified as held-and-used is appropriate. This issue pertains to whether it is feasible to have a long-lived asset impairment without goodwill impairment.

* Test for recoverability — If indicators are present, perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question to their carrying amounts (as a reminder, entities cannot record an impairment for a held and used asset unless the asset first fails this recoverability test).

5. ASC 360-10-35-30 states that “[e]stimates of future cash flows used to test the recoverability of a long-lived asset group shall incorporate the entity’s own assumptions about its use of the asset group and shall

The marketing strategy that Ricci has selected has many pros and cons. The cons are that it is highly targeted, easy to track, and highly informative. By being highly targeted, Ricci will be able to directly send advertisements to the specific target market based on the results from the feasibility study done by the consultant. Also, this will help Ricci find households that have already purchased related products in the past with the use of mailing lists. Since implementing a mail order marketing strategy is easy to track, Ricci will be able to easily calculate the return on investment. This strategy also provides the consumers with a great deal of information since mail ordering is highly informative. This type of strategy will allow for Ricci to send out an advertisement that consists of a picture of the product, detailed information about it, and a sales letter. They can also use the sales letter to offer special discounts and promotions as well.

“A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.”

According to Section 360-10-35-21, examples of events that would cause an asset to be tested for impairment include a significant decrease in the market price of a long-lived asset, or a asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, or asset group, and a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group.

Under the Section 360-10-35-21 in FASB Codification, a long-lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Following are some examples of events that would cause an asset to be tested for impairment (FASB Codification 360):

If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s carrying value over its estimated fair value.

1.    What is the minimum number of passengers Health Cruises must sign up by November 20th to break even?  [show your calculations]

The capital budgeting analysis reflects the assumptions stated in the case scenario that the initial

The White Star Line was owner of the Titanic, which was the largest and most luxurious ship in the world at the time. On April 10th, 1912, the Titanic left from Southampton, England with 2,227 passengers aboard bound for New York City. On April 14th, the ship struck an iceberg off the coast of Newfoundland and sank about 2 ½ hours later. Passengers, mostly women and children, were loaded into lifeboats, however only 705 passengers survived as many lifeboats left partially full.

　　　　The authors use two alternative method to empirically model the cash flow sensitivity of cash. The first model only include proxies: cash flow and investment opportunities.