A factory currently produces output that sells for $200 million. Production costs are
$150 million. Each year, it is equally likely that the selling price will be 20% higher or
30% lower. It will cost $5 million to close the factory, and it will cost $10 million to
open a closed plant. If the appropriate cost of capital is 10%, what is the present value
of the factory if it exists for 2 years?

Question

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The Answer of A factory currently produces output that sells for $200 million. Production costs are
$150 million. Each year, it is equally likely that the selling price will be 20% higher or
30% lower. It will cost $5 million to close the factory, and it will cost $10 million to
open a closed plant. If the appropriate cost of capital is 10%, what is the present value
of the factory if it exists for 2 years?

A Factory Currently Produces Output That Sells for $200 Million