Wansley realizes that the cash flows in Years 1 to 20 might be $30 million per year
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Question:
Wansley realizes that the cash flows in Years 1 to 20 might be $30 million per year or
$50 million per year, with a 50% probability of each outcome. Because of the nature of
the purchase contract, Wansley can sell the company 2 years after purchase (at Year 2
in this case) for $280 million if it no longer wants to own it. Given this additional information,
does decision-tree analysis indicate that it makes sense to purchase the paper
company? Again, assume that all cash flows are discounted at 13%.
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