Marin Inc. owns 25% of the common shares of Riverbed Corp. The other 75% of the shares are owned by the Riverbed family. Marin acquired the shares eight years ago through a financing transaction. Each year, Marin has received a dividend from Riverbed. Riverbed has been in business for 60 years and continues to have strong operations and cash flows. Marin must determine the fair value of this investment at its year-end. Since there is no market on which the shares are traded, Marin must use a discounted cash flow model to determine fair value. Marin management intends to hold the shares for 5 more years, at which time they will sell the shares to the Riverbed family under an existing agreement for $1 million. There is no uncertainty in this amount. Management expects to receive dividends of $89,500 for each of the five years, although there is a 20% chance that dividends could be $41,000 each year. The risk-free rate is 5% and the risk-adjusted rate is 7%.

Calculate the fair value of the investment in Riverbed using the traditional approach. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answers to 0 decimal places, e.g. 5,275.)

Calculate the fair value of the investment using the expected cash flow approach. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answers to 0 decimal places, e.g. 5,275.)

TABLE PV.1 Present Value of 1 ( periods 29% 27% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 15% 0.98039 0.97561 0.96117 0.95181 0.94232 0.92860 0.92385 0.90595 0.90583 0.88385 0.97087 0.96156 0.94260 0.92456 0.91514 0.88900 0.88849 0.85480 0.86261 0.82193 0.95238 0.90703 0.86384 0.82270 0.78353 0.94340 0.89000 0.83962 0.79209 0.74726 0.93458 0.92593 0.87344 0.85734 0.81630 0.79383 0.76290 0.73503 0.71299 0.68058 0.91743 0.84168 0.77218 0.70843 0.64993 0.90909 0.82645 0.75132 0.68301 0.62092 0.90090 0.81162 0.73119 0.65873 0.59345 0.89286 0.79719 0.71178 0.63552 0.56743 0.86957 0.75614 0.65752 0.57175 0.49718 6 12 0.88797 0.86230 0.83748 0.79031 0.87056 0.84127 0.81309 0.75992 0.853490.82075 0.78941 0.73069 0.83676 0.80073 0.76642 0.70259 0.82035 0.78120 0.74409 0.67556 0.80426 0.76214 0.72242 0.64958 0.78849 0.74356 0.70138 0.62460 0.773030.72542 0.68095 0.60057 0.75788 0.70773 0.66112 0.57748 0.74301 0.69047 0.64186 0.55526 0.72845 0.67362 0.62317 0.53391 0.71416 0.65720 0.60502 0.51337 0.70016 0.64117 0.58739 0.49363 0.68643 0.62553 0.57029 0.47464 0.67297 0.61027 0.55368 0.45639 0.74622 0.71068 0.67684 0.64461 0.61391 0.58468 0.55684 0.53032 0.50507 0.48102 0.45811 0.43630 0.41552 0.39573 0.37689 0.70496 0.66634 0.63017 0.59627 0.56447 0.53464 0.50663 0.43233 0.66506 0.62275 0.58349 0.54703 0.51316 0.48166 0.45235 0.37594 0.62741 0.58201 0.54027 0.50187 0.46651 0.43393 0.40388 0.32690 0.59190 0.54393 0.50025 0.46043 0.42410 0.39092 0.36061 0.28426 0.55839 0.50835 0.46319 0.42241 0.38554 0.35218 0.32197 0.24719 0.52679 0.47509 0.42888 0.38753 0.35049 0.31728 0.28748 0.21494 0.49697 0.44401 0.39711 0.35554 0.31863 0.28584 0.25668 0.18691 0.46884 0.41496 0.36770 0.32618 0.28966 0.25751 0.22917 0.16253 0.44230 0.38782 0.34046 0.29925 0.26333 0.23199 0.20462 0.14133 0.41727 0.36245 0.31524 0.27454 0.23939 0.20900 0.18270 0.12289 0.39365 0.33873 0.29189 0.25187 0.21763 0.18829 0.16312 0.10687 0.37136 0.31657 0.27027 0.23107 0.19785 0.16963 0.14564 0.09293 0.35034 0.29586 0.25025 0.21199 0.17986 0.15282 0.13004 0.08081 0.33051 0.27651 0.23171 0.19449 0.16351 0.13768 0.11611 0.07027 0.31180 0.25842 0.21455 0.17843 0.14864 0.12403 0.10367 0.06110 17 (1) Periods 2% 0.98039 1.94156 2.88388 3.80773 4.71346 24% 0.97561 1.92742 2.85602 3.76197 4.64583 3% 0.97087 1.91347 2.82861 3.71710 4.57971 4% 0.96154 1.88609 2.77509 3.62990 4.45182 PV = 1 - 5% 6% 0.95238 0.94340 1.85941 1.83339 2.72325 2.67301 3.54595 3.46511 4.32948 4.21236 7% 0.93458 1.80802 2.62432 3.38721 4.10020 8% 0.92593 1.78326 2.57710 3.31213 3.99271 9% 0.91743 1.75911 2.53130 3.23972 3.88965 10% 11% 0.90909 0.90090 1.73554 1.71252 2.48685 2.44371 3.16986 3.10245 3.79079 3.69590 12% 0.89286 1.69005 2.40183 3.03735 3.60478 15% 0.86957 1.62571 2.28323 2.85498 3.35216 4.23054 4.11141 3.78448 6 7 5.075694.91732 5.78637 5.58238 4.76654 5.38929 4.62288 5.20637 4.48592 5.03295 5.60143 5.50813 5.41719 5.24214 6.47199 6.349396.23028 6,00205 7.32548 7.17014 7.019696.73274 .162247.97087 7.78611 7.43533 4.35526 4.86842 5.33493 5.75902 6.46321 7.10782 6.20979 6.80169 5.97130 6.51523 5.74664 6.24689 5.53482 5.99525 4.71220 5.14612 5.53705 4.56376 4.96764 5.32825 4.16042 4.48732 4.77158 9 8 8.98259 8.75206 8.53020 8.11090 7.721737.36009 7.02358 6.71008 6.41766 6.14457 5.88923 5.650225.01877 9.78685 10.57534 9.514219.25262 10.25776 9.95400 8.76048 9.38507 8.30641 8.86325 7.88687 8.38384 7.49867 7.94269 7.13896 7.53608 6.80519 7.16073 6.49506 6.81369 6.20652 6.49236 5.93770 6.19437 5.23371 5.42062 12 13 11.34837 10.98319 10.63496 9.98565 9.39357 8.85268 8.35765 7.90378 7.48690 7.10336 6.74987 6.42355 5.58315 12.10625 12.84926 11.69091 12.38138 11.29607 11.93794 10.56312 11.11839 9.89864 10.37966 9.294988.74547 8.24424 9.71225 9.10791 8.55948 7.78615 8.06069 7.36669 7.60608 6.981876.62817 7.19087 6.81086 5.72448 5.84737 7.37916 6.97399 5.95424 16 17 13.57771 14.29187 13.05500 13.71220 14.99203 15.67846 16.35143 14.35336 14.97889 15.58916 12.56110 13.16612 13.75351 14.32380 14.87747 11.65230 12.16567 12.65930 13.13394 13.59033 10.83777 11.27407 11.68959 12.08532 12.46221 10.10590 10.47726 10.82760 11.15812 11.46992 9.44665 8.85137 9.76322 9.12164 10.059099.37189 10.33560 9.60360 10.59401 9.81815 8.31256 8.54363 8.75563 8.95012 9.12856 7.82371 8.02155 8.20141 8.36492 8.51356 7.54879 7.11963 6.04716 7.70162 7.24967 6.12797 7.839297.36578 6.19823 7.96333 7.46944 6.25933 20