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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