E6-21 (L05) (Expected Cash Flows and Present Value) Keith Bowie is trying to determine the amount to
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E6-21 (L05) (Expected Cash Flows and Present Value) Keith Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 2 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 2 years, by conducting some research online, Keith has developed the following estimates.
Engine Overhaul Probability Estimated Cash Outfl ow Assessment $200 10%
450 30%
600 50%
750 10%
Instructions How much should Keith Bowie deposit today in an account earning 6%, compounded annually, so that he will have enough money on hand in 2 years to pay for the overhaul?
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