In 2020, investors whipsawed by Kodak’s (KODK) on again, off again $765 million dollar federal loan to create generic drug ingredients also learned the company’s internal controls were so weak former executives were able to exercise more than $5 million in forfeited stock options. The future, based on the inputs Kodak uses to discount future cash flows, may be much worse than anything investors have recently endured.

In its 2020 10-K, Kodak detailed how it tested for goodwill impairment during the height of the pandemic. The company reported $12 million in goodwill at the beginning of the year. That goodwill is now reported in two reporting segments; brand and software. In its annual goodwill impairment test as of December 31, 2020, Kodak revealed just how risky it sees its future cash flows:

“The WACC also takes into consideration a company specific risk premium for each reporting unit reflecting the risk associated with the overall uncertainty of the financial projections. Discount rates of 14% to 30% were utilized…”

The annual test revealed no impairment. But six and nine months earlier, Kodak performed interim goodwill impairment tests— triggered by a pandemic fueled decline it its market value— and suggested an even more uncertain stream of future cash flows:

“Discount rates of 16% to 55% were utilized in the June 30, 2020 valuation, and 21% to 55% for the March 31, 2020 valuation…”

Kodak says the test revealed no impairment. The company did however record a $3 million impairment associated with its trade name, using discount rates between 16%-32%. Kodak’s incremental borrowing rate is 16.5%. With discount rates two and three times higher, investors with expectations below those reflected in Kodak’s discount rates might consider what management suggests is an appropriate hurdle rate:

“The discount rates are estimated based on an after-tax WACC for each reporting unit reflecting the rate of return that would be expected by a market participant. The WACC also takes into consideration a company specific risk premium for each reporting unit reflecting the risk associated with the overall uncertainty of the financial projections.”