Answered: dentify which model Skysong might use… | bartleby

Corporate Fin Focused Approach

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 23SP

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Question

Skysong, Inc. is using a discounted cash flow model.
Scenario 1: Cash flows are fairly certain
$180/year for 5 years
Risk-adjusted discount rate is 6%
Risk-free discount rate is 4%
Identify which model Skysong might use to estimate the discounted fair value under each scenario, and calculate the fair value. (For
calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answers to 2 decimal places, e.g. 5,275.25.)
Click here to view the factor table PRESENT VALUE OF 1
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.
Scenario 1.
Skysong might use
Fair Value
Scenario 2:
Skysong might use
Fair Value
$
Scenario 2: Cash flows are uncertain
75% probability that cash flows will be $180 in 5 years
25% probability that cash flows will be $95 in 5 years
Risk-adjusted discount rate is 6%
Risk-free discount rate is 4%
$
traditional approach ✓ model.
expected cash flow
model.

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Skysong, Inc. is using a discounted cash flow model. Scenario 1: Cash flows are fairly certain $180/year for 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 4% Identify which model Skysong might use to estimate the discounted fair value under each scenario, and calculate the fair value. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answers to 2 decimal places, e.g. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1 Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Scenario 1. Skysong might use Fair Value Scenario 2: Skysong might use Fair Value $ Scenario 2: Cash flows are uncertain 75% probability that cash flows will be $180 in 5 years 25% probability that cash flows will be $95 in 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 4% $ traditional approach ✔ model. expected cash flow model.
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