Forecasting cash flows using the expected value) Koch Transportation is contemplating the acquisition of LH Transport, a competing trucking firm. Koch's CFO estimates that during the next year LH Transport's cash flows from the acquisition will vary depending on the state of the local economy:

Scenario I: Recession	Scenario II: Normal	Scenario III: Expanding
Probability	29%	53%
Cash flow	$(54,000)	$149,000

a. Calculate the expected cash flow for next year using the estimates provided above.

b. Assume the probability of a recession increases to 39 percent, the normal scenario probability remains at 53 percent, and the expansion probability drops to only 8 percent. What is your estimate of the expected cash flow for next year under these circumstances?

c. Your analysis of the acquisition suggests that for the investment to have at least a zero NPV, it must produce an annual expected cash flow of $78,850 per year over the next five years. Assuming that the cash flow you estimated in part a is the expected cash flow for Years one through five, what would you like to know about the project cash flows to make you more comfortable with the idea that you can indeed generate the requisite $78,850 per year cash flow? (No computations required.)