Question
The owner of a pro-football team expects her team to be worth either $270 million next year or $120 million, depending on whether or not
The owner of a pro-football team expects her team to be worth either $270 million next year or $120 million, depending on whether or not she gets the city to build a new stadium. There is a 60% chance that the city will build a new stadium. A potential buyer is willing to pay $175 million for the pro-football team right now. However, the potential buyer will keep his offer open until the stadium issue is resolved, if offered some form of compensation. Given a discount rate of 7%, how much should she be willing to pay the potential buyer for a one-year option to sell the team (round to the nearest $1 million)?
A) $21 million B) $42 million C) $55 million D) Zero
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