Intro Win Big Inc. is considering the development of a new hotel and casino. The initial cost of the project is $82 million, including the land, building and furniture. The company has a weighted average cost of capital of 10% There is a 50% probability that another casino will be built on a nearby Indian reservation. The expected cash flows for each case are given below. After 6 years, cash flows are expected to increase at a constant rate forever. B 0.1 Competition 0.5 No comp. 0.5 1 WACC 2 3 4 Probability 5 6 Cash flows 7 Year 8 0 9 1 (SM) Competition -82 No comp. -82 3 6 10 2 4 9 3 14 11 12 4 5 17 13 5 5 19 20 14 6 5 15 Growth rate 16 0% after year 6 The company cannot delay the decision: if it wants to build the casino, it needs to build it now, since a new law will make it illegal to build new casinos starting next year. 8 Attempt 1/3 for 10 pts. Part 1 What is the expected NPV of the project (in 5 million)? 1+ decimals Submit Part 2 18. Attempt 1/3 for 10 pts. While the company cannot delay the project, it can sell the casino after the first year for $73.8 million. What is the NPV of the project now (in $ million)? 0+ decimals Submit I8 Attempt 1/3 for 10 pts Part 3 What is the value of the option (in 5 million)? 1+ decimals