Question
You own a wholesale plumbing supply store. The store currently generates revenues of $1.01 million per year. Next year, revenues will either decrease by 10.3%
You own a wholesale plumbing supply store. The store currently generates revenues of $1.01 million per year. Next year, revenues will either decrease by 10.3% or increase by 5.1%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $860,000 per year. There are no costs to shutting down; in that case you can always sell the store for $520,000. What is the business worth today if the cost of capital is fixed at 10.1%? (Hint: Make sure to round all intermediate calculations to at least four decimal places.) What is the business worth today if the cost of capital is fixed at 10.1%? Today the business is worth $ nothing. (Round to the nearest dollar.)
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