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Bpp mock 1… page no 174.. question 7 (mcq)..
Sir in the answer part the total cash flow is as follows
36000
14000
32000
10000
16000
(6000)
Sir can u please explain how they have come up with these total cash flows.. i understand 36000 (16000+20000)
But i dont understand how did they arrive at the rest of cashflowsThere are various combinations that can happen:
Year 1 16,000, Year 2 20,000. So total 35,000
Year 1 16,000, Year 2 (2000), So total 14,000
Year 1 12,000, Year 2 20,000, So total 32,000
Year 1 12,000, Year 2 (2,000 ) So total 10,000
Year 1 (4,000), Year 2 20,000. So total 16,000
Year 1 (4,000), Year 2 (2,000) So total (6,000)However, the way in the answer is more complicated than it needs to be.
The expected value in the 1st year is (0.15 x 16,000) + (0.60 x 12,000) – (4,000 x 0.25) = 8,600
The expected value in the 2nd year is (20,000 x 0.75) – (0.25 x 2,000) = 14,500Total = 8,600 + 14,500 = 23,100 (same as the answer) 🙂
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