You have 29 minutes, 34 seconds left. 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 9.20 instead of $8m and if denied the franchise, the hotel will only be worth 3.70. Additionally, the costs in incurred in the first year will be 0.90 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 50%. Incorporating these new hotel values from above, and the real option, what is the new NPV of the project? O $1.55 O$5.45 O $6.45 O $1.70 $1.65
You have 29 minutes, 34 seconds left. 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 9.20 instead of $8m and if denied the franchise, the hotel will only be worth 3.70. Additionally, the costs in incurred in the first year will be 0.90 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 50%. Incorporating these new hotel values from above, and the real option, what is the new NPV of the project? O $1.55 O$5.45 O $6.45 O $1.70 $1.65
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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Transcribed Image Text:You have 29 minutes, 34 seconds left.
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 9.20 instead of $8m and if denied the franchise, the hotel will only be worth 3.70. Additionally, the costs in incurred
in the first year will be 0.90 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 50%. Incorporating these new hotel values from above, and the real
option, what is the new NPV of the project?
$1.55
$5.45
$6.45
$1.70
$1.65
C
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