Half of all your potential customers would pay $10 for your product but the other half would only pay $8. You cannot tell them apart. Your marginal costs are $4. If you set the price at $10, the expected profit is:

The expected profit is:

$5.

Explanation:

a) Calculations:

Profit from customers paying $10 = $6 ($10 - $4)

Profit from customers paying $8 = $4 ($8 - $4)

Expected profit  from customers paying $10, = $6 x 0.5 = $3

Expected profit from customers paying $8, = $4 x 0.5 = $2

Total expected profit = $5.

The expected profit is the profit from customers paying $10 weighted with probability plus the weighted profit from customers paying $8.  Adding the expected profit from each class of customers gives the overall expected profit combined.

The value of its operations is 2,120,000.

Explanation:

The value of the company is equal to the present value of the future cash flows. It could be calculated in many ways, but one of the simplest is

Where G is the expected grow rate, and WACC is the cost of capital.

In this case, the value will be equal to