Bolisjoly Enterprises is considering buving a vacant lot for an after-tax cost of $1.3 milton. If the property is purchased, the companris plan is to invest another 15 millicn after taxes today (t=0) to build a hotel on the property. The sfter-tax cash flows from the hotel will depend crically on whether the state imposes a touriem tax in this year's legislative session. If the tax is imposod, the hotel is expected to produce after-tax cash flows of $500,000 at the end of each of the next 15 years. If the tax is not imposed, the hotal is experted to produce after-tax cash flows of $1,200,000 at the end of each of the next 15 years. The project has a 12% WACc. Assume at the outset that the company does not have the option to delay the project. a. What is the project's expected NPV if the tax is imposed? Negative value, If any, should be indicated by a minus sign. Do not round intermediate caicilations. Alound your answer to the nearest cent. s b. What is the project's expected NPV if the tax is not imposed? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations, Round your answer to the nearest cent. s c. Given that there is a 45% chance that the tax will be imposed, what is the project's expected NPV if management proceeds with it today? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest cent. 3 d. Although the company does not have an option to delay construction, it does hove the option to abandon the project i year from now if the tax is impesed. If it abandina the groject, it will sell the complete property 1 yoar from now at an expected price of $6 millon after taxes. Once the project is abandoned, the company will no langer the project today? Negative value, if any, shousd be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest cant. $ e. Finally, assume that there is no option to abandon or delay the project, but that the company has an option to purchase an adjacent property in t yeac for an aftercax make sense to purchase the property for 51.8 million after taxes). However, if the tax is not imposed, the expected NPV of the future opportunitias from developing the fops are discounted at 12%, and the probability that the tax will be imposed is still 45%. What is the most the company would pay today (t a o) for the 31 . 8 milion purchase option (at t=1 ) for the adjacent property? Negative value, if any, should be indicated by a minus sign. Do not round intermediace caicilations. Round yeur answer to the mearest cent. 5 Bolisjoly Enterprises is considering buving a vacant lot for an after-tax cost of $1.3 milton. If the property is purchased, the companris plan is to invest another 15 millicn after taxes today (t=0) to build a hotel on the property. The sfter-tax cash flows from the hotel will depend crically on whether the state imposes a touriem tax in this year's legislative session. If the tax is imposod, the hotel is expected to produce after-tax cash flows of $500,000 at the end of each of the next 15 years. If the tax is not imposed, the hotal is experted to produce after-tax cash flows of $1,200,000 at the end of each of the next 15 years. The project has a 12% WACc. Assume at the outset that the company does not have the option to delay the project. a. What is the project's expected NPV if the tax is imposed? Negative value, If any, should be indicated by a minus sign. Do not round intermediate caicilations. Alound your answer to the nearest cent. s b. What is the project's expected NPV if the tax is not imposed? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations, Round your answer to the nearest cent. s c. Given that there is a 45% chance that the tax will be imposed, what is the project's expected NPV if management proceeds with it today? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest cent. 3 d. Although the company does not have an option to delay construction, it does hove the option to abandon the project i year from now if the tax is impesed. If it abandina the groject, it will sell the complete property 1 yoar from now at an expected price of $6 millon after taxes. Once the project is abandoned, the company will no langer the project today? Negative value, if any, shousd be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest cant. $ e. Finally, assume that there is no option to abandon or delay the project, but that the company has an option to purchase an adjacent property in t yeac for an aftercax make sense to purchase the property for 51.8 million after taxes). However, if the tax is not imposed, the expected NPV of the future opportunitias from developing the fops are discounted at 12%, and the probability that the tax will be imposed is still 45%. What is the most the company would pay today (t a o) for the 31 . 8 milion purchase option (at t=1 ) for the adjacent property? Negative value, if any, should be indicated by a minus sign. Do not round intermediace caicilations. Round yeur answer to the mearest cent. 5
