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Chapter 6: Q20E (page 305)

For each of the following, determine the expected cash flows. Cash Flow Probability Estimate Assessment (a) \( 4,800 20% 6,300 50% 7,500 30% (b) \) 5,400 30% 7,200 50% 8,400 20% (c) $(1,000) 10% 3,000 80% 5,000 10%

Short Answer

Expert verified

The total expected value for part A will be $6,360, the total expected value for part B will be $6,900, and the total expected value for part C will be $2,800.

Step by step solution

01

Computation for part A

TotalExpectedValue=Cashflow×Probability=4,800×20%+6,300×50%+7,500×30%=960+3,150+2,250=$6,360

02

Computation for part B

TotalExpectedValue=Cashflow×Probability=5,400×30%+7,200×50%+8,400×20%=1,620+3,600+1,680=$6,900

03

Computation for part C

TotalExpectedValue=Cashflow×Probability=-1000×10%+3,000×80%+5,000×10%=-100+2,400+500=$2,800

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