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:

Poorly Written Numbers

Numerical figures that are difficult to read or interpret due to lack of clarity, incorrect formatting, or errors in writing.

Documentation

Written or electronic records that provide evidence of a process, decision, or activity.

Double-Entry Bookkeeping System

The Double-Entry Bookkeeping System is an accounting method that requires each financial transaction to be recorded in at least two accounts, ensuring the accounting equation remains balanced.

Single-Entry System

An accounting method where each financial transaction is recorded with a single entry to the accounting records.