Question

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For each of the following, determine the expected cash flows. (Round answers to 0 decimal places, e.g. 5,275. Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) (a) Cash Flow Estimate $4,000 6,800 9,000 $5,000 8,200 9,500 $(1,200) 3,700 5,000 Probability Assessment 30 % 60 % 10 % 30 % 40 % 30 % 15 % (c) 65% 20 % Total Expected Value
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Answer 1

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Total expected value in case of future cash flows adjusted with probability estimates are calculated as follows:

Total Expected Value = P1 * C1 + P2 * C2 + P3 * C3, wher P = Probability and C = Cash Flow

So, the answers are as follows:

a) Total Expected Value = 4000*0.3 + 6800*0.6 + 9000*0.1 = 1200 + 4080 + 900 = 6180 $

b) Total Expected Value = 5000*0.3 + 8200*0.4 + 9500*0.3 = 1500 + 3280 + 2850 = 7630$

c) Total Expected Value = (1200)*0.15 + 3500*0.65 + 5000*0.2 = (180) + 2375 + 1000 = 3195$

2 For this question the factor tables are required , else the calculations will be difficult to explain