Question
Seawares is now operating a plant that has the ability to generate a cash flow of $2.5 million per year. Due to a change in
Seawares is now operating a plant that has the ability to generate a cash flow of $2.5 million per year. Due to a change in government regulation, the cash flow next year will either increase by 25% or decrease by 27%, with a probability of 39% and 61%, respectively. The manager expects the change will last for the future once it is made. The expense to run this plant is $1 million annually. The cost of capital for this plant is estimated to be 9%. Another company, Wonderprises, would like to buy this plant for $4.6 million at any time.
The value of this plant will be closest to:
$14.80 million
$12.01 million
$10.76 million
$7.01 million
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