Ken Soree is the CEO of Black Bear, Inc. Although this firm was only recently incorporated, Ken's firm is already struggling. Among the firm's many problems, Ken notes that (a) customer demand is low for the firm's products, (b) middle management has mismanaged costs, and (c) the liquidity position is far too weak (current cash holdings equal $10,000, and the firm does not have a credit line). Recognizing that Black Bear is quickly falling behind rival firms, Ken hires a consultant to examine the firm's liquidity position using . Suppose that Ken provides the firm's historical daily cash flows (shown in the table below). Use this information to answer the questions below. ( a)Average daily cash flow= -$6,650 , b)Sample standard deviation=$11,105.68, all calculated)

Day CF

1 -$30,000

2 -$5,000

3 -$4,000

4 -$20,000

5 $7,000

6 -$9,000

7 $5,000

8 -$1,000

9 -$2,500

10 -$7,000

(c) Calculate Black Bear's and the associated probability of illiquidity.

(d) Assume that an error in accounting reveals that Black Bear really only has $5,000 in cash holdings. Recalculate Black Bear's and the associated probability of illiquidity.

(e) What do you find interesting about your calculations from part d? What is causing these interesting values?

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