Contemporary Engineering Economics (6th Edition)
6th Edition
ISBN: 9780134105598
Author: Chan S. Park
Publisher: PEARSON
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Chapter 13, Problem 17P
To determine
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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.,…
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Chapter 13 Solutions
Contemporary Engineering Economics (6th Edition)
Ch. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10P
Ch. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 1STCh. 13 - Prob. 2STCh. 13 - Prob. 3STCh. 13 - Prob. 4ST
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