(a) The expected per-CD selling price is $6 . 90% + $10 . 10% = $6.40. (b)...

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(a) The expected per-CD selling price is $6 . 90% + $10 . 10% = $6.40.

(b) If $6.40 was the price, you would gear your factory to produce 150,000 CDs. Without flexibility, your factory would be worth 150,000 . ($6.40 − $5) = $210,000.

(c) You would expect to earn 0.9 . (150,000 . [$6 − $5]) + 0.1 . (500,000 . [$12 − $8]) = $135,000 +

$200,000 = $235,000.

(d) The value of flexibility is $235,000 − $210,000 = $25,000.

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Corporate Finance An Introduction

ISBN: 9780321277992

1st Edition

Authors: Ivo Welch

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Question Posted: Oct 25, 2024 10:08 AM

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(a) The expected per-CD selling price is $6 . 90% + $10 . 10% = $6.40. (b)...

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Corporate Finance An Introduction

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