A Factory Currently Produces Output That Sells for $200 Million

question 59

Essay

A factory currently produces output that sells for $200 million. Production costs are
$150 million. Each year, it is equally likely that the selling price will be 20% higher or
30% lower. It will cost $5 million to close the factory, and it will cost $10 million to
open a closed plant. If the appropriate cost of capital is 10%, what is the present value
of the factory if it exists for 2 years?

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Definitions:

Standardized Tests

Exams designed to measure a test taker's knowledge, skills, aptitudes, or classification in various subjects, with consistent procedures and scoring methods.

Inequality

The unequal distribution of resources, opportunities, rights, and power among individuals or groups in a society.

Teacher Expectancy Effect

The impact that a teacher's expectations about a student's performance can have on the student's actual achievements.

Self-fulfilling Prophecy

A belief or expectation that influences one's behavior in such a way that it causes the belief to come true.