3. High Roller Properties is considering building a new casino at a cost of $10.5 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be $1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be $3.75 million per year for the next 5 years. The project's WACC is 10.6%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net $6.7 million after tax at t = 1. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations.

3. High Roller Properties is considering building a new casino at a cost of $10.5 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be $1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be $3.75 million per year for the next 5 years. The project's WACC is 10.6%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net $6.7 million after tax at t = 1. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Nikul
A L0IN33 builder company is deciding to undertake a pr0ject. The project is quite profitable as it will generate net cash inflows of $20 million per year for 5 years. However, it will cause pollution to the nearby residents. The company can mitigate this pollution by investing additional 10 million at Year 0 but legally it is n0t compulsory for it to do so. Undertaking this project would cost $60 million without mitigation. If the firm does invest in mitigation, the annual cash inflows would be $22 million. The risk adjusted WACC is 12%. Calculate the NPV and IRR with and without mitigation Should the project be undertaken? If so, should the firm do mitigation Note please tell me how to find pv factor@19% and 20%/discounting 19% and 20%

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