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4. (6 pts.) You own a small manufacturing plant that currently generates revenues of $2 million p year. Next year, based upon a long-term government
4. (6 pts.) You own a small manufacturing plant that currently generates revenues of $2 million p year. Next year, based upon a long-term government contract is awarded or not, will either increase by 20% or decrease by 25%, with equal probability, and stay at that level as as you operate the plant. Other costs run $1.6 million dollars per year. You can time to a large conglomerate for $5 million and your cost of capital is 10%. your revenues long sell the plant at any a. If you are awarded the government contract and your sales increase by 20%, then what is b If you are not awarded the government contract and your sales decrease by 25%, then c. Given the embedded option to sell the plant, what is the value of your plant? What is the d. Assume that you are not able to sell the plant, but you are able to shut down the plant at the value of your plant? what is the value of your plant? value of the option to sell the plant? no cost at any time. What is the value of the option to abandon production
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