Return to the Sport Hotel example in the course notes, the lesson, and in Chapter 9. Suppose that everything stays the same as was presented in the original problem, except one thing -- the value of the hotel, should the city be awarded the franchise, is not $8 million but instead is $5.85 million. Using this new value of the hotel, what is the NPV of the project assuming that the probability of the city being awarded the franchise is 40%? Place your answer in millions of dollars using three decimal places.

Sport Hotel Problem

(21) Application of Real Option Analysis Through the Sport Hotel Project: Rework the NPV of the Sport Hotel project incorporating two changes: (1) the probability that the city will be awarded the franchise is 40%, and (2) the building costs in the first year of the project are not $1 million as originally stated but is $1.5 million instead. All other values are the same. [Answer] NPV = $0.10 million Finish NPV = +$2.5 million ($8M-$5.5M) Franchise is granted ===> Abandon NPV = $1.5 million Move forward Finish NPV = $3.5 million ($2M-$5.5M) A 0