You have the opportunity to buy a business. The business will generate 2 million

of free cash flows in the first year. Afterwards, cash flows will increase 2% per year with

probability 60% and decrease 2% per year with probability 40%. It will be known after 2

years which scenario will occur.

The cost of capital is 10%

The seller offers to buy the business back at the same price you paid for it at the end

of two years.

Calculate the highest amount you would pay for the business