DANELLA DANCE studios is evaluating the purchase of new sound equipment that will increase the probability of your aerobic dances. The equipment will cost $28,000. Danells is not sure how many members the new team will attract, but estimates that the additional annual cash flows over the next five years will have the following probability distribution. Danella's cost of capital is 10 percent.

Cash FlowProbability

$3,600.2

5,000.3

7,400.4

9,800.1

1. What is the expected value of the cash flow? The value you calculate will be applied to each of you for the next five years?
2. What is the expected net present value?
3. Is it convenient for Danella to compare the new team?

Answer rating: 100% (QA)

To calculate the expected value of the cash flow we multiply each cash flow by its respec... View the full answer