|
|
Cash flow
|
Probability
|
Probability-
adjusted
cash flow
|
Discount factor 6%
|
Present value
|
|
Year 1
Adjustment to reflect risk premium.
|
$8,000
$10,000
|
0.10
0.90
|
$ 800
9,000
$9,800
(1,400)
$8,400
|
0.943
|
$7,921
|
|
Year 2
|
$7,000
$10,000
|
0.15
0.85
|
$1,050
8,500
$9,550
|
0.890
|
$8,500
|
|
Year 3
|
$7,000
$10,000
|
0.20
0.80
|
$1,400
8,000
$9,400
|
0.840
|
$7,896
|
|
Year 4
|
$6,500
$10,000
|
0.23
0.77
|
$1,495
7,700
$9,195
|
0.792
|
$7,282
|
|
Year 5
|
$6,000
$10,000
|
0.25
0.75
|
$1,500
7,500
$9,000
|
0.747
|
$6,723
|
|
Year 6
|
$ 5,000
$10,000
|
0.30
0.70
|
$ 1,500
7,000
$ 8,500
|
0.705
|
$ 5,992
|
|
Total
|
|
|
$54,045
|
|
$44,314
|
|
|
|