You own a wholesale plumbing supply store. The store currently generates revenues of $1 million...
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You own a wholesale plumbing supply store. The store currently generates revenues of $1 million per year. Next year, revenues will either decrease by 8% or increase by 10%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $900,000 per year. There are no costs for shutting down; in that case, you can always sell the store for $330,000. Cost of capital is fixed at 10%
b. What is the business worth today with the option to abandon?
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