This question relates to the Sporthotel problem we covered in class (and is also in your textbook and course workbook). In the original problem, your firm would build a hotel that would either be worth Sam if the franchise is awarded or 12m if the franchise was denied Additionally, the hotel would incur $1m of cost in year 1 followed by $2m in year 2 and 1 Let's consider the following changes to the original problem if the tranchise is awarded the hotel will be worth 9.60 instead of Som and denied the franchise, the hotel will only be worth 1.20. Additionally, The first year will be 1.30 but the costs in year 2 and 3 will remain the same Al other aspects of the problem are the same as originally presented, such as the costs per year. Assume that the probability of obtaining the tranchise is 40% incorporating these new hotel values from above what is new NPV the project? ( 58.7 - 58.44 OHN OSA.N - 18.82 SUBMIT ANSWER costs in incurred in real option
This question relates to the Sporthotel problem we covered in class (and is also in your textbook and course workbook). In the original problem, your firm would build a hotel that would either be worth Sam if the franchise is awarded or 12m if the franchise was denied Additionally, the hotel would incur $1m of cost in year 1 followed by $2m in year 2 and 1 Let's consider the following changes to the original problem if the tranchise is awarded the hotel will be worth 9.60 instead of Som and denied the franchise, the hotel will only be worth 1.20. Additionally, The first year will be 1.30 but the costs in year 2 and 3 will remain the same Al other aspects of the problem are the same as originally presented, such as the costs per year. Assume that the probability of obtaining the tranchise is 40% incorporating these new hotel values from above what is new NPV the project? ( 58.7 - 58.44 OHN OSA.N - 18.82 SUBMIT ANSWER costs in incurred in real option
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter26: Real Options
Section: Chapter Questions
Problem 5P
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Transcribed Image Text:This question relates to the SportHolel problem we covered in class (and is also in your textbook and course workbook). In the original problem, your firm would build a hotel that would either be worth 58m if the franchise is
or the franchise was Additionally, the hotel would incur
in year 1 by in year 2 and $2m in year
Let's consider the foliowing changes to the original problem. If the franchise is awarded the hotel wil be worth 9.60 instead of $8m and if denied the franchise, the hotel will only be worth 3.20. Additionally, the costs in incurred in
the first year will be 1.30 but the costs in year 2 and 3 will remain the same.
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 40%. Incorporating these new hotel values from above, and the real option
what is the new NPV of the project?
$5.76
$0.44
Ⓒ5-0.04
14.76
Ⓒ10.92
SUBMIT ANSWER
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