Lucky Enterprises is using a discounted cash flow model. Identify which model Lucky might use to estimate discounted fair value under each scenario, and calculate the fair value:
Scenario 1: Cash flows are fairly certain $1 00/year for 5 years
Risk-adjusted discount rate is 6%
Risk-free discount rate is 3%
Scenario 2: Cash flows are uncertain
75% probability that cash flows will be $100 in 5 years
25% probability that cash flows will be $75 in 5 years
Risk-adjusted discount rate is 6%
Risk-free discount rate is 3%