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# Expected Cash Flow and Probability Distribution

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Project with a 3 year life has the following probability distibutions for possible end of year cash flows in each of the next 3 years.

Year 1 Year 2 Year 3

Prob Cash flow Prob Cash flow Prob Cash flow
.30 \$300 .15 \$100 .25 \$200
.40 \$500 .35 \$200 .75 \$800
.30 \$700 .36 \$600
.15 \$900

Using a interest rate of 8% find the expected present value of these uncertain cash flows.

#### Solution Summary

Excel file contains calculation of expected present value of uncertain cash flow.

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## Uneven Cash Flows & Purchasing Power vs. Inflation

See attachment.

Q5
At an inflation rate of 9 percent, the purchasing power of RM1 would be cut in half in
8.04 years. How long to the nearest year would it take the purchasing power of RM1 to
be cut in half if the inflation rate were only 4 percent?

Q6
A project with a 3-year life has the following probability distributions for its possible endof-
year cash flows in each of the next three years:
Year 1 Year 1 Year 1
Prob Cash Flow Prob Cash Flow Prob Cash Flow
0.30 RM300 0.15 RM100 0.25 RM200
0.40 500 0.35 200 0.75 800
0.30 700 0.35 600
0.15 900
Using an interest rate of 8 percent, find the expected present value of these uncertain
cash flows.

Q7
Kamel recently invested RM2,566.70 in a project that promises 12 percent rate of return
per year. The cash flows are expected to be as follows:
END OF YEAR CASH FLOW
1 RM325
2 400
3 550
4 ?
5 750
6 800
What is the cash flow at the end of the 4th year?

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