J&R Construction Company is an international conglomerate with a real estate division that owns the right to erect an office building on a parcel of land in downtown Sacramento over the next year. This building would cost $15 million to construct. Due to low demand for office space in the downtown area, such a building is worth approximately $13.5 million today. If demand increases, the building would be worth $16.8 million a year from today. If demand decreases, the same office building would be worth only $12 million in a year. The company can borrow and lend at the risk-free annual effective rate of 6 percent. A local competitor in the real estate business has recently offered $728,000 for the right to build an office building on the land. What is the value of the office building today? Use the two-state model to value the real option. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

The economic analysis division of Mapco Enterprises has estimated the demand function for its line of weed trimmers as QD=18,000+0.4N350PM+90Ps where N=numberofnewhomescompletedintheprimarymarketarea PM=priceoftheMapcotrimmerPS=priceofitscompetitorsSurefiretrimmer In 2010, 15,000 new homes are expected to be completed in the primary market area. Mapco plans to charge $50 for its trimmer. The Surefire trimmer is expected to sell for $55. What sales are forecasted for 2010 under these conditions? If its competitor cuts the price of the Surefire trimmer to $50, what effect will this have on Mapcos sales? What effect would a 30 percent reduction in the number of new homes completed have on Mapcos sales (ignore the impact of the price cut of the Surefire trimmer)?

Furniture Forecasting Futura Furniture Products manufactures upscale office furniture for the Office of the Future. The sales division comprises regionally based sales offices made up of sales representatives and regional managers. Sales representativeswho report to the regional managersconduct direct sales efforts with customers in their regions. As part of the sales process, representatives gather information about likely future orders and convey that information back to the regional managers. Regional managers use that information to create sales forecasts, which are then used as the basis for manufacturing schedules. Sales representatives and regional managers are both compensated on a salary plus commission (percentage of revenue as pricing is centrally controlled). However, a regional managers commission is adjusted based on regional sales that exceed the forecasted budget. Corporate managers are concerned with one of Futuras key products, the DeskPod. They worry that DeskPod forecasts are inaccurate, causing extreme havoc in the manufacturing process. How are the forecasts likely to be inaccurate? What do you think is driving this inaccuracy? How might this problem be solved?

As a value-maximizing aluminum company, should Hydro invest in wind power in Light of the Utsira pilot project? Why or why not?