Return to the Sport Hotel example in the course notes and in Chapter 9. Suppose

Question

Return to the Sport Hotel example in the course notes and in Chapter 9. Suppose that everything stays the same as was presented in the original problem except for two things: the projected expenditures in the first year is not $1 million but instead is $1.405 million, and the probability of being awarded the franchise is not 50% but is 37%. Using these new values, and incorporating the real option, what would the NPV be at the decision node B on the decision tree?

Place your answer in millions of dollars using four decimal places.

Return to the Sport Hotel example in the course notes and in Chapter 9. Suppose that everything stays the same as was presented in the original problem except for two things: the projected expenditures in the first year is not $1 million but instead is $1.405 million, and the probability of being awarded the franchise is not 50% but is 37%. Using these new values, and incorporating the real option, what would the NPV be at the decision node B on the decision tree? Place your answer in millions of dollars using four decimal places.

Explanation / Answer

Hello Pal,

First of all a very nice as well as intersting question from your side.

So now straight to the question, as asked above with all the information available from your side and from mine, the answer is as under:

After calculation of the above given information, we can conclude that the answer will be $1.256 million.

That is all I can say from the above given information by you, hope have solved your problem to some extent.

Regards.

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