NBC has the rights to televise the Winter Olympics in two years, and is trying to estimate

the value of these rights for possible sale to another network. NBC expects it to cost $40

million (in present value terms) to televise the Olympics, and based on current

assessments expects to have a Nielsen rating of 15 for the games. Each rating point is

expected to yield net revenue of $2 million to NBC (in present value terms). There is

substantial variability in this estimate, and the standard deviation in the expected net

revenues is 30%. The riskless rate is 5%.

a. What is the net present value of these rights, based on current assessments?

b. Estimate the value of these rights for sale to another network.