Kingbird Enterprises is using a discounted cash flow model. Identify which model Kingbird might use to estimate the discount value under each scenario, and calculate the fair value using the present value tables: Scenario 1: Cash flows are fairly certain $160/year for 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 3% Scenario 2: Cash flows are uncertain 75% probability that cash flows will be $160 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 3%

FINANCIAL ACCOUNTING
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ISBN:9781259964947
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Chapter1: Financial Statements And Business Decisions
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Kingbird Enterprises is using a discounted cash flow model. Identify which model Kingbird might use to estimate the discounted fair
value under each scenario, and calculate the fair value using the present value tables:
Scenario 1: Cash flows are fairly certain
$160/year for 5 years
Risk-adjusted discount rate is 6%
Risk-free discount rate is 3%
(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.)
Scenario 1:
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.
Kingbird might use
Fair value
Scenario 2:
Kingbird might use
Fair value
$
Scenario 2: Cash flows are uncertain
75% probability that cash flows will be $160 in 5 years
25% probability that cash flows will be $95 in 5 years
Risk-adjusted discount rate is 6%
LA
Risk-free discount rate is 3%
$
✓ model.
model.
Transcribed Image Text:Kingbird Enterprises is using a discounted cash flow model. Identify which model Kingbird might use to estimate the discounted fair value under each scenario, and calculate the fair value using the present value tables: Scenario 1: Cash flows are fairly certain $160/year for 5 years Risk-adjusted discount rate is 6% Risk-free discount rate is 3% (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.) Scenario 1: 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. Kingbird might use Fair value Scenario 2: Kingbird might use Fair value $ Scenario 2: Cash flows are uncertain 75% probability that cash flows will be $160 in 5 years 25% probability that cash flows will be $95 in 5 years Risk-adjusted discount rate is 6% LA Risk-free discount rate is 3% $ ✓ model. model.
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