Problem 13-16 (Algo) Expected value with net present value [LO13-1]Debby's Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing.The equipment will cost $25,400. Debby is not sure how many members the new equipment will attract, but she estimates that herincreased annual cash flows for each of the next five years will have the following probability distribution. Debby's cost of capital is 13percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculatormethods.Cash Flow$ 4,5205,4407,80010,010Probability0.20.4a. What is the expected value of the cash flow? The value you compute will apply to each of the five years.Expected cash flow0.30.1b. What is the expected net present value?Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to2 decimal places.Net present valuec. Should Debby buy the new equipment?O YesO No

One of the methods used for capital budgeting is the net present value method. In order to compute…

Answered: Debby's Dance Studios is considering…

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

Problem 1PS

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