bobby Studios is considering the purchase The equipment will cost $27,900. Bobby is not sure how many members the new equipment will attract, but she estimates that his increased annual cash flows for each of the next five years will have the following probability distribution. bobbys cost of capital is 15 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods.

A. What is the expected value of the cash flow? The value you compute will apply to each of the five years. b. What is the expected net present value? c.Should Bobby buy the new equipment?

Cash Flow $4,570 5,550 7,400 9,930 Probability 0.1 0.3 0.4 0.2