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Shamrock, Inc. is using a discounted cash flow model. Scenario 1: Cash flows are fairly certain Scenario 2: Cash flows are uncertain $170/year for 5

Shamrock, Inc. is using a discounted cash flow model.

Scenario 1: Cash flows are fairly certain Scenario 2: Cash flows are uncertain
$170/year for 5 years 75% probability that cash flows will be $170 in 5 years
Risk-adjusted discount rate is 7% 25% probability that cash flows will be $110 in 5 years
Risk-free discount rate is 2% Risk-adjusted discount rate is 7%
Risk-free discount rate is 2%

Identify which model Shamrock might use to estimate the discounted fair value under each scenario, and calculate the fair value.

Scenario 1:

Shamrock might use a.) expected cash flow b.) traditional approach model.
Fair Value $

Scenario 2:

Shamrock might use a.) expected cash flow b.) traditional approach model.
Fair Value $

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