AV Aa- { } - 1917FD Options Models A construction firm is considering whether or not to upgrade an existing ch emical plant. The initial cost of the upgrade is $5,000,000, and the company requires a 10% return on its investment The plant can be up graded in one year and start earning revenue the following year. The best forecast promises cash flows of $1 million per year, but should adverse economic and political conditions prevail, the probability of realizing this amount drops to 40%, with a 60% probability that the investment will yield only $200,000 per year. By waiting a year, the company determines that its investment will have a 50% kelihood (up from the original projection of 40%)of paying off at the higher value of $1 million per year. Should the company postpone the project? 3-37 TH