A Factory Currently Produces Output That Sells for $125 Million

question 47

Multiple Choice

A factory currently produces output that sells for $125 million. Production costs are $100 million. Each year it is equally likely that the selling price of the output will be 25% higher or
30% lower. Assume the cost of capital is zero and that it will cost nothing to close the plant or
To reopen it. What is the present value of this factory if it exists for 2 years?

• A)$41.80
• B)$56.64
• C)$36.35
• D)$57.73

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Definitions:

Pitcher's Mound

A raised area on a baseball field from where the pitcher throws the ball to the batter.

Wood Bats

Sporting equipment made of wood, typically used in baseball, characterized by its material which affects the game’s dynamics.

Center Field Wall

A barrier or fence that marks the outer boundary of the center field area in a baseball field.

Granite Floors

Flooring made from granite, a durable and aesthetically pleasing natural stone.