Question

Acort Industries owns assets that will have an 80% probability of having a market value of $50 million in one year. There is a 20% chance that the assets will be worth only $20 million. The current risk-free rate is 5%, and Acort’s assets have a cost of capital of 10%

Answer 1

Answer: $40 million

Step-by-step explanation:

E[Value in one year] = 0.8 (50) + 0.2 (20) = 44 = 44

E = 44/1.10 = $40 million