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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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