You own a wholesale plumbing supply store. The store currently generates revenues of $1.01 million per year. Next year, revenues will either decrease by 9.8% or increase by 5.2%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $880,000 per year. There are no costs to shutting down; in that case you can always sell the store for $360,000. What is the business worth today if the cost of capital is fixed at 9.7%? (Hint: Make sure to round all intermediate calculations to at least four decimal places.) What is the business worth today if the cost of capital is fixed at 9.7%? Today the business is worth $ . (Round to the nearest dollar.)

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
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You own a wholesale plumbing supply store. The store currently generates revenues of $1.01 million per year. Next year, revenues will either decrease by 9.8% or increase by 5.2%,
with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $880,000 per year. There are no costs to shutting down;
in that case you can always sell the store for $360,000. What is the business worth today if the cost of capital is fixed at 9.7%? (Hint: Make sure to round all intermediate calculations
to at least four decimal places.)
What is the business worth today if the cost of capital is fixed at 9.7%?
Today the business is worth $. (Round to the nearest dollar.)
Transcribed Image Text:You own a wholesale plumbing supply store. The store currently generates revenues of $1.01 million per year. Next year, revenues will either decrease by 9.8% or increase by 5.2%, with equal probability, and then stay at that level as long as you operate the store. You own the store outright. Other costs run $880,000 per year. There are no costs to shutting down; in that case you can always sell the store for $360,000. What is the business worth today if the cost of capital is fixed at 9.7%? (Hint: Make sure to round all intermediate calculations to at least four decimal places.) What is the business worth today if the cost of capital is fixed at 9.7%? Today the business is worth $. (Round to the nearest dollar.)
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