This question is a variant of the Sport Hotel example that was presented in class, in the class notes, and in the Real O
Posted: Sun Jul 03, 2022 12:54 pm
This question is a variant of the Sport Hotel example that waspresented in class, in the class notes, and in the Real Optionchapter. The change to consider is this: suppose that the value ofthe hotel is one of two values: $9.5 million if the city issuccessful in obtaining the franchise (and not $8 million as in theoriginal problem) or $3.0 if the city is not successful inobtaining the franchise (and not $2 million as in the originalproblem). All other aspects of the problem are the same asoriginally presented, such as the costs per year. Assume that theprobability of obtaining the franchise is 50%. Incorporating thesenew hotel values from above, and the real option, what is the newNPV of the project?
$ million
Place your answer in millions of dollars using at least threedecimal places. For example, the answer of nine hundredseventy-five thousand would be entered as 0.975 and not as975000.
$ million
Place your answer in millions of dollars using at least threedecimal places. For example, the answer of nine hundredseventy-five thousand would be entered as 0.975 and not as975000.