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Skysong Enterprises is using a discounted cash flow model. Identify which model Skysong might use to estimate the discounted fair value under each scenario, and

Skysong Enterprises is using a discounted cash flow model. Identify which model Skysong might use to estimate the discounted fair value under each scenario, and calculate the fair value using the present value tables:

Scenario 1: Cash flows are fairly certain

$250/year for 5 years

Risk-adjusted discount rate is 5%

Risk-free discount rate is 3%

Scenario 2: Cash flows are uncertain

75% probability that cash flows will be $250 in 5 years

25% probability that cash flows will be $120 in 5 years

Risk-adjusted discount rate is 5%

Risk-free discount rate is 3%

Which model ( traditional approach or expected cash flow) does the company use in Scenerio 1&2?

Caculate fair value in 2 scenerios.

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