Sport Hotel Project

$$

Project cash outflows:

First year $($Purchase Right, Land, and Permits$)$ $$1,000,000$

Second Year $($Construct building shell $$2,000,000$

Third Year: $($Finish interior and furnishings$)$ $$2,000,000$

TOTAL $$5,000,000$

Projected cash inflows:

If the franchise is granted hotel will be worth: $$$5,750,000$when it opened

If the franchise is denied hotel will be worth: $$2,000,000$ when it opened.

The probability of the city being awarded the franchise is $50\%.$

$$

Which of the following is true?

Sport Hotel Project

$$

Project cash outflows:

First year $($Purchase Right, Land, and Permits$)$ $$1,000,000$

Second Year $($Construct building shell $$2,000,000$

Third Year: $($Finish interior and furnishings$)$ $$2,000,000$

TOTAL $$5,000,000$

Projected cash inflows:

If the franchise is granted hotel will be worth: $$$5,750,000$when it opened

If the franchise is denied hotel will be worth: $$2,000,000$ when it opened.

The probability of the city being awarded the franchise is $50\%.$

$$

Which of the following is true?

The project$$s NPV will be $$1,225,000$

The project$$s NPV will be $-$$$1,125,000$

The project$$s NPV will be $$1,750,000$

The project$$s NPV will be $$0$

The project$$s NPV will be $$425,000$