Question
The Webber company is an international conglomerate with a real estate division that owns the right to erect an office building on a parcel of
The Webber company is an international conglomerate with a real estate division that owns the right to erect an office building on a parcel of land in downtown Cleveland over the next year. The building would cost 55 million dollars to construct. Due to low demand for office space such a building would be worth 53.5 million dollars today. If demand increases, the building would be worth 60 million dollars a year from now. However, if demand decreases the same building would be worth 49.2 million dollars. The firm can borrow and lend at the risk free annual effective rate (i.e simple rate) of 4.5 percent. A local competitor in the real estate business has recently offered 1.3 million for the right to build an office building on the land. Should the company accept this offer. Provide details explaining your results.
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