Vaughn Clothing of the previous problem has a real option possibility. Carlson Flooring has expressed an interest
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Vaughn Clothing of the previous problem has a real option possibility. Carlson Flooring has expressed an interest in trading buildings with Vaughn after Vaughn's is refurbished. Carlson has offered to reimburse Vaughn for 70% of its refurbishment costs at the end of the first year if they make the trade. Vaughn would then forego all incremental cash flows for the second year. Carlson is willing to keep the option open for one year in return for a non-refundable payment of $150,000 now. Should Vaughn pay the $150,000 to keep the option available?
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