An auto plant that costs $100 million to build can produce a new line of cars that will generate cash flows with a present value of $140 million if the line is successful, but only $50 million if it is unsuccessful. You believe that the probability of success is only about 50%.
a. Would you build the plant?
b. Suppose that the plant can be sold for $90 million to another automaker if the line is not successful. Now would you build the plant?
c. Illustrate this option to abandon using a decision tree.
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