Year 0 Year 1 Good Bad Year 2 Very good $1 billion Medium $200 million Very bad -$500 million In year 1. the firm has the option of running the plant at less than full capacity. In this case, workers are laid off, production of memory chips is scaled down, and the subsequent cash flows are half of what they would be when the plant is running at full capacity. An alternative use for the firm's funds is investment in the market portfolio. In the states that correspond to the branches of the tree above, St invested in the market portfolio grows as follows: 12.4.