You own a small manufacturing plant that currently generates revenues of $2 million per year....
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You own a small manufacturing plant that currently generates revenues of $2 million per year. Next year, based upon a decision on a long-term government contract, your revenues will either increase by 20% or decrease by 25%, with equal probability, and stay at that level as long as you operate the plant. other costs run $1.6 million dollars per year. You can sell the plant at any time to a large conglomerate for $5 million and your cost of capital is 10%.
If you are not awarded the government contract and your sales decrease by 25%, then the value of your plant will be closest to:
A. -$1 million
B. $5 million
C. $8 million
D. $0
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