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Davis Company is formed with $5,000 in equity and is expected to generate the following cash flows (all occurring at the end of one year):

Davis Company is formed with $5,000 in equity and is expected to generate the following cash flows (all occurring at the end of one year):

Cash FlowsProbability

$63,000 0.3

39,0000.5

28,000 0.2

Determine if the equity is high enough to absorb expected losses assuming the appropriate discount rate is 6%. Show your work to receive credit.

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