Here is the ORIGINAL data of the Sporthotel problem: 1. Projected outflows First year (Purchase Right, Land, and Permits) $1,000,000 Second Year (Construct building shell $2,000,000 Third Year: (Finish interior and furnishings) $2,000,000 TOTAL $5,000,000 2. Projected inflows If the franchise is granted hotel will be worth: $8,000,000 when it opened If the franchise is denied hotel will be worth: $2,000,000 when it opened. The probability of the city being awarded the franchise is 50%. Suppose that everything is the same as in that problem except one thing: the worth of the hotel, should the city be awarded the franchise, is not $8 million but some unknown smaller number. What must the new worth of the hotel when the franchise is granted be in order for the NPV of the Sporthotel project to be equal to exactly zero? a. The value of the hotel should the city be awarded the franchise = $7 million b. The value of the hotel should the city be awarded the franchise = $6 million c. The value of the hotel should the city be awarded the franchise = $5 million d. The value of the hotel should the city be awarded the franchise = $4 million e. The value of the hotel should the city be awarded the franchise = $0 million
Here is the ORIGINAL data of the Sporthotel problem:
1. Projected outflows First year (Purchase Right, Land, and Permits) $1,000,000
Second Year (Construct building shell $2,000,000
Third Year: (Finish interior and furnishings) $2,000,000
TOTAL $5,000,000
2. Projected inflows If the franchise is granted hotel will be worth: $8,000,000 when it opened If the franchise is denied hotel will be worth: $2,000,000 when it opened.
The probability of the city being awarded the franchise is 50%.
Suppose that everything is the same as in that problem except one thing: the worth of the hotel, should the city be awarded the franchise, is not $8 million but some unknown smaller number.
What must the new worth of the hotel when the franchise is granted be in order for the
a. The value of the hotel should the city be awarded the franchise = $7 million
b. The value of the hotel should the city be awarded the franchise = $6 million
c. The value of the hotel should the city be awarded the franchise = $5 million
d. The value of the hotel should the city be awarded the franchise = $4 million
e. The value of the hotel should the city be awarded the franchise = $0 million
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
