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The Strasburg Company
Balance Sheet as of December 31 ($ millions)
Current assets	$900.00	Accounts payable	$172.50
Net fixed assets	450	Notes payable to bank	255
		Other current liabilities	225
		Total current liabilities	$652.50
		Long-term debt (10%)	300
		Common stock, $3 par	60
			Retained earnings	337.5
Total assets	$1,350.00	Total liabilities and equity	$1,350.00
Income Statement for Year Ended December 31 ($ millions)
Sales	$2,475.00
Operating costs	-2,227.50
Earnings before interest and taxes (EBIT) (10%)	$247.50
Interest on short-term debt	-15
Interest on long-term debt	-30
Earnings before taxes (EBT)	$202.50
Taxes (40%)	-81
Net income $	$121.50
The probability distribution for annual sales is as follows:
	Annual Sales
Probability	($ millions)
0.2	$2,250
0.6	2,700
0.2	3,150

Question: What are the implications of these changes?

With P₀ = $60 and r_d = 12%, change the sales probability distribution to the following:

Alternative 1 Alternative 2

Sales Probability Sales Probability

$2,250 0.0 $ 0 0.3

2,700 1.0 2,700 0.4

3,150 0.0 7,500 0.3

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