You own a wholesale plumbing supply store. The store currently generates revenues of $1 million per year.

Question:

You own a wholesale plumbing supply store. The store currently generates revenues of $1 million per year. Next year, revenues will either decrease by 10% or increase by 5%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $900,000 per year. There are no costs for shutting down; in that case, you can always sell the store for $500,000. What is the business worth today if the cost of capital is fixed at 10%?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...