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Sean Potter owns and operates a regional chain of motels in the Guelph area and is looking to expand into Fergus. He is currently in discussion with two people about buying each of their motels. After reviewing historical financial records, Sean has come up with the following estimates of cash flows for each of these operations: Schlafen Gut Motel Yearly after-tax cash inflow Probability $ 100.000 20 110.000 20 140.000 170 000 20 180.000 20 Bien Dormir Motel Yearly after tax cash inflow Probability S 115 000 20 120 000 % 140 000 40 150 000 10 30 20 Mr.Potter is looking at a 20-year time horizon and will use this time period for decision-making purposes. Either motel can be acquired for $1.200.000. Mr Potter uses a risk-adjusted discount rate when considering investments. His scale is related to the coefficient of variation Mr.Potter is looking at a 20-year time horizon and will use this time period for decision-making purposes. Either motel can be acquired for $1.200.000. Mr.Potter uses a risk-adjusted discount rate when considering investments. His scale is related to the coefficient of variation Coefficient of variation 0-020 021-030 031 - 40 Over 0 40 Discount rate 8 12 15 Not considered

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