Question
Pinder Ltd is considering building an electric power plant with a useful life of three years and with no salvage value. A solar power plant
Pinder Ltd is considering building an electric power plant with a useful life of three years and with no salvage value. A solar power plant will cost $10 million and will return $6 million per year for three years if demand is high and $4 million per year for three years if demand is low. A gas power plant will cost $20 million and will return $12 million per year for three years if demand if high and $7 million per year for three years if demand is low. The probability that the demand will be high for the next three years is 60% and the probability that the demand will be low for the next three years is 40%. If the opportunity cost of capital is 10%, what is the increase in Pinder Ltds firm value if it chooses to build a gas power plant value relative to building the solar power plant? Round to the nearest two digits.
Group of answer choices
A) None of the other answers are correct.
B) $2.10 million
C) $2.26 million
D) $1.78 million
E) $1.94 million
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