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Calculate the value of your plant

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Question - You own a small manufacturing plant that currently generates revenues of RM 2 million per year. Next year, based upon a decision on a long-term government contract, your revenues will either increase by 20% or decrease by 25%, with equal probability and stay at that level as long as you operate the plant. Other costs run RM 1.6 million per year. You can sell the plant at any time to a large conglomerate for RM 5 million and your cost of capital is 10%.

a. Estimate the value of your plant it you are awarded the government contract and your sales increase by 20%.

b. Calculate the value of your plant if you are not awarded the government contract and your sales decrease by 25%.

Reference no: EM133085649

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