Use the Information for the Question(s)below

question 60

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%.
-Assume that you are not able to sell the plant,but you are able to shut down the plant at no cost at any time.The value of the option to abandon production will be closest to:

• A)$1.0 million.
• B)$0.5 million.
• C)-$1.0 million.
• D)$3.0 million.

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Definitions:

League Of United Latin American Citizens

The oldest Latino civil rights organization in the United States, founded in 1929 to combat the discrimination faced by Hispanics in the country.

Mexican-Americans

Americans of Mexican descent, making up a significant part of the U.S. population with a rich cultural heritage and history.

Full Rights

The complete and unconditional entitlements that individuals are guaranteed by law or society, without any discrimination.

Naturalized

Describes the process by which a non-citizen in a country acquires its nationality, gaining the rights and responsibilities of citizenship.