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only need help with: *year 3: adjustment 3 *ALL Adjusted Inflow *part b-1 Products Inc, as Vice-President of Finance She believes in adjusting projects for

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only need help with:
*year 3: adjustment 3
*ALL Adjusted Inflow
*part b-1
Products Inc, as Vice-President of Finance She believes in adjusting projects for risk. Her father is somewhat skeptical but agrees to go along with her. Her approach is somewhat different than the risk-adjusted discount rate approach, but achieves the same objective, She suggests that the inflows for each year of a project be adjusted downward for lack of certainty and then be discounted back at a risk free rate. The theory is that the adjustment penalty makes the inflows the equivalent of riskless Intlows, and therefore a risk-free rate is justified A table showing the possible coefficient of variation for an inflow and the associated adjustment factor is shown next: Coefficient of Variation = 0.25 0.26 -0.50 0.51 -0.25 0.76 1.00 1.01 - 1.25 Adjustment Factor 0.90 0.80 0.70 0.60 0.50 Assume a $180.000 project provides the following inflows with the associated coefficients of variation for each year. Coefficient of Variation 0.15 Year 1 2 3 4 5 Inflow 511,800 53,200 77,000 59,100 66,10 0.52 2.71 1.10 a. Fill in the table below: (Do not round intermediate calculations. Round "Adjustment Factor" answers to 2 decimal places and other answers to the nearest whole dollar.) Year 1 2. Adjustment Factor Adjusted Inflow 0.90 $ 28,800 090 53,640 0.81 61,600 0.70 43,540 0.50 33,500 3 4 5 b-1. If the risk-free rate is 5 percent, compute the net present value of the adjusted inflows. (Negative amount should be indicated by o minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value $ 3,847 42

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