Question
1)This question is a variant of the Sport Hotel example that was presented in class, in the class notes, and in the Real Option chapter.
1)This question is a variant of the Sport Hotel example that was presented in class, in the class notes, and in the Real Option chapter. The change to consider is this: suppose that the value of the hotel is one of two values: $8.8 million if the city is successful in obtaining the franchise (and not $8 million as in the original problem) or $3.2 if the city is not successful in obtaining the franchise (and not $2 million as in the original problem). All other aspects of the problem are the same as originally presented. Incorporating these new values, and the real option, what is the new NPV of the project?
2) This question is a variant of the Sport Hotel example that was presented in class, in the class notes, and in the Real Option chapter. Suppose that in the example, the first year expenditures that include the purchase of plans and permits is not $1 million but instead $0.9 million. All other aspects of the problem are the same as originally presented. Incorporating these new values, and the real option, what is the new NPV of the project?
3) Consider again the Sport Hotel example and Example 9.1. Suppose that if the franchise is accepted the value of the hotel is not $8 million but instead $7.50. Everything else, including first year expenses, is the same as shown in the example. Incorporating the real option, what probability of the franchise being granted would represent a "fair investment?" (that is, a probability such that any higher value would create a positive expected value)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started