A developer plans to start construction of a building in two years if, at that point, rent level make construction feasible. At that time, the building will cost $1,000,000 to construct. Du the first year after construction (year 3), there is a 50% chance that NOI will be $150,000 a 50% chance that the NOI will be $75,000. In either case, NOI would be expected to increa at 4% per year thereafter. What is the value of the real option on the vacant land today if th relevant discount rate is 14%? O109,649 137,369 192,367 96,183
A developer plans to start construction of a building in two years if, at that point, rent level make construction feasible. At that time, the building will cost $1,000,000 to construct. Du the first year after construction (year 3), there is a 50% chance that NOI will be $150,000 a 50% chance that the NOI will be $75,000. In either case, NOI would be expected to increa at 4% per year thereafter. What is the value of the real option on the vacant land today if th relevant discount rate is 14%? O109,649 137,369 192,367 96,183
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 17EA: Gardner Denver Company is considering the purchase of a new piece of factory equipment that will...
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![A developer plans to start construction of a building in two years if, at that point, rent levels
make construction feasible. At that time, the building will cost $1,000,000 to construct. During
the first year after construction (year 3), there is a 50% chance that NOI will be $150,000 and a
50% chance that the NOI will be $75,000. In either case, NOI would be expected to increase
at 4% per year thereafter. What is the value of the real option on the vacant land today if the
relevant discount rate is 14%?
O 109,649
O 137,369
O 192,367
96,183](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F08c05e4b-cfb6-43b1-8136-f3fdca79e2e7%2F9af061f7-f4f9-4f8e-a426-29b6ba8fe551%2F5eet5ej_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A developer plans to start construction of a building in two years if, at that point, rent levels
make construction feasible. At that time, the building will cost $1,000,000 to construct. During
the first year after construction (year 3), there is a 50% chance that NOI will be $150,000 and a
50% chance that the NOI will be $75,000. In either case, NOI would be expected to increase
at 4% per year thereafter. What is the value of the real option on the vacant land today if the
relevant discount rate is 14%?
O 109,649
O 137,369
O 192,367
96,183
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