Classic Products is evaluating a possible investment in a new plant costing $1000. By the end of a year they will know w

[answerhappygod]

Classic Products is evaluating a possible investment in a newplant costing $1000. By the end of a year theywill know whether cash flows will be $140 a year in perpetuity oronly $50 a year, but in either case the firstcash flow will not occur until year 2. Alternatively, they would beable to sell their plant in year 1 for $700($800, if things go well). They assess a 70 percent chance that theproject will turn out well and a 30 percentchance it will turn out badly. Their opportunity cost of funds is10 percent. What should they do? Use adecision tree approach.Are there limitations of the decision tree approach in general fordynamic investment decisions? Explain.