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 9.8% or increase by 5.2%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $880,000 per year. There are no costs to shutting down; in that case you can always sell the store for $360,000. 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.) What is the business worth today if the cost of capital is fixed at 9.7%? Today the business is worth $ . (Round to the nearest dollar.)
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 9.8% or increase by 5.2%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $880,000 per year. There are no costs to shutting down; in that case you can always sell the store for $360,000. 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.) What is the business worth today if the cost of capital is fixed at 9.7%? Today the business is worth $ . (Round to the nearest dollar.)
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 19P
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