11. 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 dollars per year. You can sell the plant at any time to a large conglomerate for $5 million and your cost of capital is 10%.

Assuming you are able to sell the plant, draw a decision tree detailing this problem.

12) 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. Draw a decision tree detailing this problem.

14-3) DM Skateboard company is planning to develop a new electric skateboard. In order for the project to be successful, the company must develop a new deck to accommodate a lightweight battery, a lightweight battery, and a remote that is easy to operate while moving in an open environment. The company estimates the following costs, times, and probabilities of success for each component of the new skateboard:

Technology	Cost (in thousands)	Time	Probability of Success
Deck	$50	six months	0.75
Battery	$200	3 years	0.25
Remote	$250	1 year	0.5

All three risks are idiosyncratic and the risk-free rate of interest is 5%. The company does not have the resources to develop all the components at the same time. Therefore, management needs to decide in what order to develop the technologies.

What is the failure cost index of the deck technology?

A) 0.00500

B) 0.98500

C) 0.98536

D) 0.00536

15-4) DM Skateboard company is planning to develop a new electric skateboard. In order for the project to be successful, the company must develop a new deck to accommodate a lightweight battery, a lightweight battery, and a remote that is easy to operate while moving in an open environment. The company estimates the following costs, times, and probabilities of success for each component of the new skateboard:

Technology	Cost (in thousands)	Time	Probability of Success
Deck	$50	six months	0.75
Battery	$200	3 years	0.25
Remote	$250	1 year	0.5

All three risks are idiosyncratic and the risk-free rate of interest is 5%. The company does not have the resources to develop all the components at the same time. Therefore, management needs to decide in what order to develop the technologies.

DM Skateboard company is planning to develop a new electric skateboard. In order for the project to be successful, the company must develop a new deck to accommodate a lightweight battery, a lightweight battery, and a remote that is easy to operate while moving in an open environment. The company estimates the following costs, times, and probabilities of success for each component of the new skateboard:

Technology	Cost (in thousands)	Time	Probability of Success
Deck	$50	six months	0.75
Battery	$200	3 years	0.25
Remote	$250	1 year	0.5

All three risks are idiosyncratic and the risk-free rate of interest is 5%. The company does not have the resources to develop all the components at the same time. Therefore, management needs to decide in what order to develop the technologies.

What is the failure cost index of the battery technology?

A) 0.00375

B) 0.00392

C) 0.99875

D) 0.99892