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Splish Brothers Inc. is using a discounted cash flow model. Scenario 1: Cash flows are fairly certain Scenario 2: Cash flows are uncertain $270/year for
Splish Brothers Inc. is using a discounted cash flow model. Scenario 1: Cash flows are fairly certain Scenario 2: Cash flows are uncertain $270/year for 5 years 75% probability that cash flows will be $270 in 5 years Risk-adjusted discount rate is 8% 25% probability that cash flows will be $85 in 5 years Risk-free discount rate is 3% Risk-adjusted discount rate is 8% Risk-free discount rate is 3% Identify which model Splish Brothers might use to estimate the discounted fair value under each scenario, and calculate the fair value. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answers to 2 decimal places, e.g. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Scenario 1: Splish Brothers might use traditional approach model. Fair Value $ Scenario 2: Splish Brothers might use expected cash flow model. Fair Value $
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