1. Here is the ORIGINAL data of the Sporthotel problem: 1. Projected outflows Fi
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Question
1. Here is the ORIGINAL data of the Sporthotel problem: 1. Projected outflows First year (Purchase Right, Land, and Permits) $1,000,000 Second Year (Construct building shell $2,000,000 Third Year: (Finish interior and furnishings) $2,000,000 TOTAL $5,000,000 2. Projected inflows If the franchise is granted hotel will be worth: $8,000,000 when it opened If the franchise is denied hotel will be worth: $2,000,000 when it opened. The probability of the city being awarded the franchise is 50%. Assume that everything is the same in the problem except for one thing: the first year projected outflow is not $1 million but instead is $1.1 million. Given this change, which of the following is true when the franchise is granted?
The project’s NPV = $1.00 million
The project’s NPV = $0.90 million
The project’s NPV = $0.80 million
The project’s NPV = $0.70 million
The project’s NPV = $0.60 million
2. Sara bought a straddle on Brent with the following characteristics: exercise price = $5, premium of call = $1, and the premium of put is $1.50. Which of the following is TRUE if at this moment the price of Brent is $5.50 per share?
The call is in-the-money and the put is out-of-the-money
The call is in-the-money and the put is at-the-money
Both the call and the put are in-the-money
The call is out-of-the-money and the put is in-the-money
Both the call and the put are out-of-the-money
a.The project’s NPV = $1.00 million
b.The project’s NPV = $0.90 million
c.The project’s NPV = $0.80 million
d.The project’s NPV = $0.70 million
e.The project’s NPV = $0.60 million
Explanation / Answer
1.
The project’s NPV = $0.90 million is answer
b.The project’s NPV = $0.90 million is answer
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