13–2. (Forecasting cash flows using the expected value) (Related to Checkpoint 13.1 on page 444) Koch Transportation is contemplating the acquisition of LH Transport, a competing trucking firm. Koch's CFO estimates that during the next year LH Transport's flows from the acquisition will vary depending on the state of the local economy: Scenario I: Recession Scenario II: Scenario IlI: Normal Expanding Probability 20% 60% 20% Cash flow $(50,000) $150,000 $250,000 a. Calculate the expected cash flow for next year using the estimates provided above. b. Assume the probability of a recession increases to 30 percent, the normal scenario probability remains at 60 percent, and the expansion probability drops to only 10 percent. What is your estimate of the expected cash flow for next year under this circumstance?
13–2. (Forecasting cash flows using the expected value) (Related to Checkpoint 13.1 on page 444) Koch Transportation is contemplating the acquisition of LH Transport, a competing trucking firm. Koch's CFO estimates that during the next year LH Transport's flows from the acquisition will vary depending on the state of the local economy: Scenario I: Recession Scenario II: Scenario IlI: Normal Expanding Probability 20% 60% 20% Cash flow $(50,000) $150,000 $250,000 a. Calculate the expected cash flow for next year using the estimates provided above. b. Assume the probability of a recession increases to 30 percent, the normal scenario probability remains at 60 percent, and the expansion probability drops to only 10 percent. What is your estimate of the expected cash flow for next year under this circumstance?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:13-2. (Forecasting cash flows using the expected value) (Related to Checkpoint 13.1 on
page 444) Koch Transportation is contemplating the acquisition of LH Transport,
a competing trucking firm. Koch's CFO estimates that during the next year LH
Transport's flows from the acquisition will vary depending on the state of the local
economy:
Scenario I:
Recession
Scenario II: Scenario III:
Expanding
Normal
Probability
20%
60%
20%
Cash flow
$(50,000)
$150,000
$250,000
a. Calculate the expected cash flow for next year using the estimates provided
above.
b. Assume the probability of a recession increases to 30 percent, the normal scenario
probability remains at 60 percent, and the expansion probability drops to only
10 percent. What is your estimate of the expected cash flow for next year under
this circumstance?
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