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 9.9% or increase by 5.5%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $870,000 per year. There are no costs to shutting down; in that case you can always sell the store for $510,000. What is the business worth today if the cost of capital is fixed at 9.7%?(Hint: Make sure to round all intermediate calculations to at least four decimal places.)

Part 1

What is the business worth today if the cost of capital is fixed at 9.7%?