The Window Store will have a value of $139,000 if the economy does well this coming year and a value of $121,000 if the economy does poorly. The probability of a good economy is 68 percent. The firm owes its bondholders $63,000. The firm will only operate for one more year. What is the value of this firm to its shareholders?

The value of this firm to shareholders is $70240

Explanation:

Using expected value approach, the value of the firm can be computed as :

(Optimistic value*its probability)+(pessimistic value*its probability)

optimistic value=$139000 and its probability is 68%=0.68

Pessimistic value=$121000 and its probability is 1-0.68=0.32

Expected value=($139000*0.68)+($121000*0.32)

                         =$133240

However, the value to shareholders is the expected value of the firm less debt of $63000

Equity value=$133240-$63000

                      =$70240

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a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.