Mathias Company estimated that it has a 20% probability of receiving $240,000 one year from now, a 30% probability of receiving $240,000 two years from now, and a 50% probability of receiving $240,000 three years from now.
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Required:
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Using the FASB's concept of "expected cash flows," calculate the present value of the expected cash flows assuming a 10% interest rate compounded annually.
What will be an ideal response?
Present value of a single sum using probabilities, table approach:??
| PV | = (FV× Factor for Pn = 1, i = 10%× 20%) + (FV× Factor for Pn = 2, i = 10%× 30%) + |
| (FV× Factor for Pn = 3, i = 10%× 50%) | |
| = ($240,000 × 0.909091 × 20%) + ($240,000 × .826446 × 30%) + | |
| ($240,000 × 0.751315 × 50%) | |
| = $43,636 + $59,504 + $90,158 | |
| = $193,298 |
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What will be an ideal response?
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.
A. - 
B. - 
C. 
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