Sunshine is now operating a plant that has the ability to generate a cash flow of $3
Question:
Sunshine is now operating a plant that has the ability to generate a cash flow of $3 million per year. A new legislation that will be passed shortly can change the operating of this plant. After the passage of the legislation, the cash flow next year will either decrease by 10% or decrease by 30%, with a probability of 40% and 60%, respectively. The manager expects the change will last for the future once it is made. The expense to run this plant is $1.8 million annually. The cost of capital for this plant is estimated to be 10%. Another company, Sunset, would like to buy this plant for $6 million at any time. what is The value of this plant ?
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe