solution

Ali has a rock quarry (alla) that provides local stone for landscaping. Currently, Jan-2021, he has an offer for $45,000 to sell the quarry. He has only one week to make this decision. He is hesitant to sell because he believes there will be an increase in demand in the next 2 years that would improve his financial situation. He thinks there is a 60% chance of an increase in demand, at which point he would operate at a profit of $30,000 in 2021, and then decide to operate at a profit of $50,000 in 2022 or sell the quarry to a new buyer for $45,000 in Jan-2022. If demand does not increase, he would operate at a profit of only $7,000 in 2021 and 6,000 in 2022. If he decides to keep the quarry, the current buyer would be willing to pay $8,000 in Jan- 2022. Interest rates are 5% and 7% in the first and second year, respectively,