Paterson's Trucking Company is considering buying out a competitor, Travel Transport (TT). Paterson's financial manager estimates...

 

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Paterson's Trucking Company is considering buying out a competitor, Travel Transport (TT). Paterson's financial manager estimates that, during the next year, the cash flows from TT will vary depending upon the state of the local economy as shown below: Scenario 1 Recession 30% Scenario 3 Expansion 20% Scenario 2 State of the Economy Probability Normal 50% Cash flow for each scenario -$50,000 $150,000 $250,000 a) Based on Paterson's estimated probabilities for each state of the economy, what is your estimate of expected cash flows for TT? (2.5 marks) b) Assume the probability of a recession increases to 40%, the normal scenario probability remains at 50%, and the expansion probability drops to only 10%. What is your estimate of the expected cash flow under this circumstance? Paterson's Trucking Company is considering buying out a competitor, Travel Transport (TT). Paterson's financial manager estimates that, during the next year, the cash flows from TT will vary depending upon the state of the local economy as shown below: Scenario 1 Recession 30% Scenario 3 Expansion 20% Scenario 2 State of the Economy Probability Normal 50% Cash flow for each scenario -$50,000 $150,000 $250,000 a) Based on Paterson's estimated probabilities for each state of the economy, what is your estimate of expected cash flows for TT? (2.5 marks) b) Assume the probability of a recession increases to 40%, the normal scenario probability remains at 50%, and the expansion probability drops to only 10%. What is your estimate of the expected cash flow under this circumstance?

Answer rating: 100% (QA)

a Based on Patersons estimated probabilities for each state of the economy the ... View the full answer