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:

Pineal Gland

A small, pea-shaped gland in the brain that produces melatonin, a hormone that regulates sleep-wake cycles.

Insulin

A substance secreted by the pancreas that controls blood glucose levels by promoting glucose absorption into the body's tissues.

Resting Potential

The electrical potential of a neuron or other excitable cell relative to its surroundings when not stimulated or involved in passage of an impulse.

Central Nervous System

The part of the nervous system consisting of the brain and spinal cord, which integrates information received from the body and coordinates activity.