Use the Information for the Question(s)below

question 14

Multiple Choice

Use the information for the question(s) below.
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 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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Definitions:

High Income

Refers to individuals or households that earn a significantly higher amount of money compared to the average income levels within a specific geographic region or within a particular demographic.

Economic Theory

The study of how goods, services, and wealth are produced, distributed, and consumed in society.

Demand

The desire for certain goods or services backed by the ability and willingness to pay for them.

Luxury Goods

High-end items that are not necessary for survival but are desired for their quality, status, or aesthetics.