e. Assume there is no option to abandon or delay the project but that the company has an option to purchase an adjacent property in 1 year at a price of

$1.5 million. If the tourism tax is imposed, then the net present value of developing this property (as of t = 1) is only $300,000 (so it wouldn’t make sense to purchase the property for $1.5 million). However, if the tax is not imposed, then the net present value of the future opportunities from developing the property would be $4 million (as of t = 1). Thus, under this scenario it would make sense to purchase the property for $1.5 million. Given that cash flows are discounted at 12% and that there’s a 50-50 chance the tax will be imposed, how much would the company pay today for the option to purchase this property 1 year from now for $1.5 million?