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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%

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
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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