In calculating present value in a situation with a range of
possible outcomes all discounted using the same interest rate, the
expected present value would be
a. The most-likely outcome.
b. The maximum outcome.
c. The minimum outcome.
d. The sum of probability-weighted present values.
21. A cash flow of $200,000 may be received by Lydia Nickels,
Inc. in one year, two years, or three years, with probabilities of
20%, 50%, and 30%, respectively. The rate of interest on default
risk-free investments is 5%. The present value factors are
PV of 1, at 5%, for 1 year is .95238
PV of 1, at 5%, for 2 years is .90703
PV of 1, at 5%, for 3 years is .86384
What is the expected present value of Lydia Nickels’ cash flow (in
whole dollars)?