Question: Teal Mountain Inc. is using a discounted cash flow model. Scenario 1: Cash flows are fairly certain Scenario 2: Cash flows are uncertain $ 160/year

Teal Mountain Inc. is using a discounted cash flow model.

Scenario 1: Cash flows are fairly certain		Scenario 2: Cash flows are uncertain
$ 160/year for 5 years		75% probability that cash flows will be $ 160 in 5 years
Risk-adjusted discount rate is 5%		25% probability that cash flows will be $ 115 in 5 years
Risk-free discount rate is 3%		Risk-adjusted discount rate is 5%
		Risk-free discount rate is 3%

Identify which model Teal Mountain 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:

	traditional approach expected cash flow fair value

Scenario 2:

	traditional approach expected cash flow fair value

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