Return to the Sport Hotel example in the class notes, discussed in class, and in Chapter 9 of the textbook. This quiz question will use the time line and all the figures in this original problem - for example, the costs of building the hotel over three years, the value of the hotel when completed under the two scenarios, and assign as the probability of the city being awarded the franchise the value of 50%. Now consider the following three changes to that original problem (all other aspects of the problem do not change). First, the projected expenditures or outflows in the first year is not as originally given at $1 million but instead is $0.655 million. Second, the projected expenditures or outflows in year 2 is not as originally given as $2 million but instead is $2.345. Third, the probability that the city will be awarded the franchise is not 50% as originally given by instead is 43% Using these three new values, and incorporating the potential real abandonment option, what would the NPV be at the decision node B on the decision tree? $ million Place your answer in millions of dollars using four decimal places. For example, the answer of nine hundred and seventy five thousand would be entered as 0.975. If applicable, indicate negative amounts with a minus sign in front of the number. (17) Solving a Real Option Analysis Using Decision Trees: The Sporthotel example has two decision points. The first is whether or not to start the project, and the second is whether to abandon the project after the first year. In the decision tree, although time is illustrated moving from the left to the right side of the tree, we'll solve the project NPV from the other direction. This is known as backward induction. The first step is to determine the cash flows at C and D : The next step is to determine the value of the project at node B. Since B is an information node, the value at node B is based on probabilities and uncertainty. If the paths are equally likely (that is, a 50% probability of each path) the node B value is: (9) The Sporthotel - Traditional NPV: Hyatt International is now deciding whether or not to build a hotel next to a soon to be built state-of-the-art hockey arena. The hotel is in a city that is one of three vying for an NHL franchise. Hyatt's plan is for the property to be the official hotel of the team. The NHL will announce their franchise decision in exactly one year. If the franchise is granted, the games will begin two years from that point in time, or three years from today. To be the official hotel, the property must be ready for guests when the first game is played. It takes exactly three years to build the hotel