Question $6(1$ point$)$

Gavin Mills has an existing facility that it paid $26,000,000$ for $10$ years ago. It has $3$

choices for this facility now: sell it outright for $9\mathrm{.}5M$ today, lease it for the next $4$

years to a supplier, then sell it at the end of the last year of the lease for $5M,$ or use it

to produce flax seed for $4$ years, then sell it at the end of the last year of production

for $6M,$ but it will have to be upgraded $($today$)$ for use at a cost of $1\mathrm{.}5$M $($not paid

under the lease option$).$ If it is used by Gavin to produce flax seed it can be sold for

$$42$ a bushel with a contribution margin ratio $($how much the firm keeps after

variable costs of production$)$ of $25\%.$ To operate the plant, Gavin will incur $$200,000$

per year of fixed costs, regardless of production levels $($not applicable to the lease$).$

Gavin forecasts that it will sell the following bushels in each of the next $4$ years:

$200,000,300,000,400,000,100,000.$ The lease terms would be $$2M$ per year plus a

$$200,000$ per year reduction in costs for the supplies Gavin buys from the leasee.

Please use a WACC of $12\%.$

How much would the salvage value $($sale price at the end of the lease$)$ have to be to

change the decision? Please consider changes in $$100,000$ increments $($i$.$e$.5\mathrm{.}2M$ to

$5\mathrm{.}1$M$)$ and enter your response in millions with no units and ONE decimal place:

$"$$$5,100,000"$ would be $"5\mathrm{.}1".$