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J&R Construction Company is an international conglomerate with a real estate division that owns the right to erect an office building on a parcel of
J&R Construction Company is an international conglomerate with a real estate division that owns the right to erect an office building on a parcel of land in downtown Sacramento over the next year. This building would cost $ million to construct. Due to low demand for office space in the downtown area, such a building is worth approximately $ million today. If demand increases, the building would be worth $ million a year from today. If demand decreases, the same office building would be worth only $ million in a year. The company can borrow and lend at the riskfree annual effective rate of percent. A local competitor in the real estate business has recently offered $ for the right to build an office building on the land. What is the value of the office building today?
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