1. A factory can be worth $500,000 or $1,000,000 in 2 years, depending on product demand, each with equal probability. The appropriate cost of capital is 6% per year. What is the present value of the factory?
2. A new product may be a dud (20% probability), an average seller (70% probability), or dynamite (10% probability). If it is a dud, the payoff will be.