A Factory Currently Produces Output That Sells for $125 Million

question 52

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 10%, 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)$50.04
• C)$36.35
• D)$57.73

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Definitions:

Specific Phobia

an intense, irrational fear of or aversion to a particular object, situation, or activity that poses little to no actual danger.

Intense Fear

A profound feeling of dread or terror, often triggered by perceived threats or dangerous situations.

Excoriation

A skin condition characterized by the repeated picking at one's own skin, often leading to sores and scars.

Compulsive Behavior

Repetitive, often ritualistic actions that an individual feels driven to perform, usually as a response to obsessive thoughts or to reduce anxiety.