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You own a widget factory that can produce 1 0 0 widgets per year. The fixed costs of making widgets are $ 2 0 0
You own a widget factory that can produce widgets per year. The fixed costs of making widgets are $ per year, and each widget costs $ to make. You can currently sell a widget for $ The yearly variance of widget prices is and the risk free rate is compounded annually.
Each year, instead of making widgets, you can choose to accept a government contract with a guaranteed profit of $ Choosing this in one year does not mean you cannot make widgets next year.
The factory has years left in its useful life, at which point it will have no salvage value. Your first cash flow is one year from today.
What is the lowest amount of money you would be willing to sell the factory for?
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