This question relates to the SportHotel problem we covered in class (and is also in your textbook and course workbook). In the original problem, your firm would build a hotel that would either be worth $8m if the franchise is awarded or $2m if the franchise was denied. Additionally, the hotel would incur $1m of cost in year 1 followed by $2m in year 2 and $2m in year 3. Let's consider the following changes to the original problem. If the franchise is awarded, the hotel will be worth 9.30 instead of $8m and if denied the franchise, the hotel will only be worth 3.80. Additionally, the costs in incurred in the first year will be 1.80 but the costs in year 2 and 3 will remain the same. All other aspects of the problem are the same as originally presented, such as the costs per year. Assume that the probability of obtaining the franchise is 40%. Incorporating these new hotel values from above, and the real option, what is the new NPV of the project? $0.32 $0.20 $0.80 $6.00 $5.00

This question relates to the SportHolel problem we covered in class (and is also in your textbook and course workbook). In the original problem, your firm would build a hotel that would either be worth 58m if the franchise is or the franchise was Additionally, the hotel would incur in year 1 by in year 2 and $2m in year Let's consider the foliowing changes to the original problem. If the franchise is awarded the hotel wil be worth 9.60 instead of $8m and if denied the franchise, the hotel will only be worth 3.20. Additionally, the costs in incurred in the first year will be 1.30 but the costs in year 2 and 3 will remain the same. All other aspects of the problem are the same as originally presented, such as the costs per year. Assume that the probability of obtaining the franchise is 40%. Incorporating these new hotel values from above, and the real option what is the new NPV of the project? $5.76 $0.44 Ⓒ5-0.04 14.76 Ⓒ10.92 SUBMIT ANSWER

2. You are thinking about starting a restaurant franchise in Irvine, California. You are considering two choices – either a P.F. Chang’s or a Dairy Queen. Unfortunately, you only have an opportunity to build one or the other. The details are the following:    P.F. Chang’s: The franchise fee and cost of the building are $1,000,000. After careful calculation, you believe the restaurant will generate $150,000 a year in positive cash flow for the next 20 years at which point the franchise rights expire and the building is worthless (ie. There’s no extra money at the end). Discount rate is 10%.    Dairy Queen: The franchise fee and cost of the building are $500,000. After careful calculation, you believe the restaurant will generate $80,000 a year in positive cash flow for the next 20 years at which point the franchise rights expire and the building is worthless (ie. There’s no extra money at the end). Discount rate is 10%.   a) What are the two projects’ IRRs and which franchise would you…

Hi, can you help me solve this problem?