George Michael Fashion, an international top designer, has just open a new shop of his brand GMF** at Passeig de Grcia in Barcelona. This business activity has required an initial capital outlay of 2450. In one year, the market value of his Barcelona shop is expected to become either 3920 (probability of 60%), if tourists and local people adopt the GMF** style, or 1531.25 (probability of 40%), if customers prefer to buy at other fashion shops on this famous avenue.

Since George Michael Fashion tends to be always optimistic and expects great acceptance of his innovative products, he is considering a next strategic step to expand his business activity: to open a second shop at La Roca Village. It would require an initial capital outlay of 1955 to be invested in one year.

The risk-free interest rate is 2% while the risk premium associated to this project is 8%.

1. Explain which real option is associated to this project and calculate its value.

2. Which is the market value of this project incorporating all strategic components? Why.