LAL Corporation currently generates revenues of $1 million per year. Next year, revenues will either increase by 8.8% (economic boom) or decrease by 9.6% (economic bust), with equal probability, and then this level is expected to remain constant. Other costs run $880,000 per year. There are no costs to shutting down; in that case you can sell the company for $510,000. The cost of capital is 9.6%. What is the business worth today? Your answer should be in millions and accurate to two decimal places (e.g., $10,503,000 should be entered as 10.50).
LAL Corporation currently generates revenues of $1 million per year. Next year, revenues will either increase by 8.8% (economic boom) or decrease by 9.6% (economic bust), with equal probability, and then this level is expected to remain constant. Other costs run $880,000 per year. There are no costs to shutting down; in that case you can sell the company for $510,000. The cost of capital is 9.6%. What is the business worth today? Your answer should be in millions and accurate to two decimal places (e.g., $10,503,000 should be entered as 10.50).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
100%
LAL Corporation currently generates revenues of $1 million per year. Next year, revenues will either increase by 8.8% (economic boom) or decrease by 9.6% (economic bust), with equal probability, and then this level is expected to remain constant. Other costs run $880,000 per year. There are no costs to shutting down; in that case you can sell the company for $510,000. The cost of capital is 9.6%. What is the business worth today? Your answer should be in millions and accurate to two decimal places (e.g., $10,503,000 should be entered as 10.50).
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education