Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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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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What is sensitivity analysis? How might it be used in real estate development?
A commercial real estate company has an option to develop a parcel of land. Assuming the
dynamics of land value, L, are described by geometric Brownian motion with drift a and
volatility o, and that the cost of developing the land is I, answer the following questions.
Assume the economy is risk-neutral and the instantaneous risk-free rate of interest is r.
a. Compute the value of the development option, F(L), and the optimal exercise policy, L,
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a Poisson process with intensity parameter 2; and that conditional on the arrival of
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REITs can expand their income by: Group of answer choices Speculating with “build-to-suit” projects for existing tenants By engaging in any or all of these activities Offering property management, marketing or other services to third parties By using financial leverage
Chapter 23 Solutions
Corporate Finance
Ch. 23 - Employee Stock Options Why do companies issue...Ch. 23 - Real Options What are the two options that many...Ch. 23 - Project Analysis Why does a strict NPV calculation...Ch. 23 - Real Options Utility companies often face a...Ch. 23 - Prob. 5CQCh. 23 - Real Options Star Mining buys a gold mine, but the...Ch. 23 - Real Options You are discussing real options with...Ch. 23 - Real Options and Capital Budgeting Your company...Ch. 23 - Insurance as an Option Insurance, whether...Ch. 23 - Real Options How would the analysis of real...
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