Exercise

Imagine a company that decides to build a new factory. They

already did their analyses and determined that the future

benefit they will receive from the factory will outweigh the

cost of construction. They pay for the factory up front and

expect to earn a certain level of cash flows from the factory's

production each year. But after a few years, the factory is

underperforming and cash flows are less than expected.

A decision has to be made: should the factory be shut down

or not?