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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Definitions:

First Continental Congress

A meeting of delegates from 12 of the 13 American colonies in 1774, convened to respond to Britain's Intolerable Acts, leading to the drafting of the Declaration of Independence.

Virginian

Pertaining to Virginia, a state in the southeastern United States, or its inhabitants.

Patrick Henry

A Founding Father of the United States known for his declaration "Give me liberty, or give me death!" in opposition to British rule.

Common Sense

Practical judgment concerning everyday matters, or a basic ability to perceive, understand, and judge in a manner that is shared by (common to) nearly all people.