Maurice Tutor

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About Maurice Tutor

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Expertise:
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Algebra,Applied Sciences,Biology,Calculus,Chemistry,Economics,English,Essay writing,Geography,Geology,Health & Medical,Physics,Science Hide all
Teaching Since: May 2017
Last Sign in: 402 Weeks Ago, 6 Days Ago
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Education

  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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  • Professor
    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 29 Jul 2017 My Price 7.00

Dryclean, Inc.,

P14.6 Risk-Adjusted Discount Rates. One-Hour Dryclean, Inc., is contemplating replacing an obsolete dry-cleaning machine with one of two innovative pieces of equipment. Alternative 1 requires a current investment outlay of $25,373, whereas alternative 2 requires an outlay of

$24,199. The following cash flows (cost savings) will be generated each year over the new machines’ 4-year lives:

 

 

Probability

Cash Flow

Alternative 1

0.18

$ 5,000

 

0.64

10,000

 

0.18

15,000

Alternative 2

0.125

$ 8,000

 

0.75

10,000

 

0.125

12,000

A.   Calculate the expected cash flow for each investment alternative.

 

 

 

 

 

 

 

 

 

B.    Calculate the standard deviation of cash flows (risk) for each investment alternative.

C.    The firm will use a discount rate of 12% for the cash flows with a higher degree of disper- sion and a 10% rate for the less risky cash flows. Calculate the expected net present value for each investment. Which alternative should be chosen?

Answers

Maurice Tutor
(5)
Status NEW Posted 29 Jul 2017 01:07 PM My Price 7.00

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