Marin Enterprises is using a discounted cash flow model . Identify which model Marin might use to estimate the discounted fair value under each scenario , and calculate the fair value using the present value tables :
Scenario 1 : Cash flows are fairly certain
$240 / year for 5 years
Risk - adjusted discount rate is 8 %
Risk - free discount rate is 2%
Scenario 2 : Cash flows are uncertain
75 % probability that cash flows will be $240 in 5 years
25 % probability that cash flows will be $115 in 5 years
Risk - adjusted discount rate is 8 %
Risk - free discount rate is 2 %
Scenario 1 :
Marin might use: _______ model.
Fair value: $ _____
Scenario 2 :
Marin might use: ______ flow
Fair value: $ _______