Determine the expected value of each assembler cash flows

Reference no: EM13299929

The Slumber Corp. is considering two mutually exclusive mattress assemblers. Both require an initial outlay of $75,000 and will operate for five years. The probability distributions associated with each assembler for years 1 through 5 are given below:

Cash Flow Years 1-5
Assembler A Assembler B
Probability Cash Flow Probability Cash Flow
.20 $30,000 .20 $18,000
.60 45,000 .60 54,000
.20 60,000 .20 90,000

Since assembler B is the riskier of the two, management has decided to apply a required rate of return of 18 percent to its evaluation but only a 12 percent required rate of return to assembler A.

a. Determine the expected value of each assembler's cash flows.
b. Determine each assembler's risk-adjusted net present value.

Reference no: EM13299929

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