CORPORATE FINANCE ACCESS CARD
CORPORATE FINANCE ACCESS CARD
12th Edition
ISBN: 2810023360184
Author: Ross
Publisher: MCG
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Chapter 23, Problem 5CQ
Summary Introduction

To determine: Advantage of waiting to develop the area

Real option:

Real option is the right to take decision related to available investment opportunity regarding the expanding capital in project. Real option refers to the tangible assets, it is not related to the financial investment.

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Question 1 (6 marks) King’s Park, Trinidad is owned and operated by a private company, Windy Sports Ltd. You work as the Facilities Manager of the Park and the CEO of the company has asked you to evaluate whether Windy should embark on the expansion of the facility given there are plans by the Government to host next cricket championship. The project seeks to increase the number of seats by building four new box seating areas for VIPs and an additional 5,000 seats for the general public. Each box seating area is expected to generate $400,000 in incremental annual revenue, while each of the new seats for the general public will generate $2,500 in incremental annual revenue. The incremental expenses associated with the new boxes and seating will amount to 60 percent of the revenues. These expenses include hiring additional personnel to handle concessions, ushering, and security. The new construction will cost $15 million and will be fully depreciated (to a value of zero dollars) on a…
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