This question is a variant of the Sport Hotel example that was presented in class, in the class notes, and in the Real Option chapter.

The change to consider is this: suppose that the value of the hotel is one of two values: $$9\mathrm{.}4$ million if the city is successful in obtaining the franchise $($and not $$8$ million as in the original problem$)$ or $$3\mathrm{.}7$ if the city is not successful in obtaining the franchise $($and not $$2$ million as in the original problem$).$

All other aspects of the problem are the same as originally presented, such as the costs per year. Assume that the probability of obtaining the franchise is $50\%.$ Incorporating these new hotel values from above, and the real option, what is the new NPV of the project?