1. What is the project's NPV, given the projections in Table 10.8?

2. Conduct a sensitivity and a scenario analysis of the project. What do these analyses reveal about the project's risks and potential value?

Waldo County, the well-known real estate developer, worked long hours, and he expected his staff to do the same. So George Chavez was not surprised to receive a call from the boss just as George was about to leave for a long summer's weekend.

Mr. County's success had been built on a remarkable instinct for a good site. He would exclaim "Location! Location! Location!" at some point in every planning meeting. Yet finance was not his strong suit. On this occasion he wanted George to go over the figures for a new $90 million outlet mall designed to intercept tourists heading down east toward Maine. "First thing Monday will do just fine," he said as he handed George the file. "I'll be in my house in Bar Harbor if you need me."

George's first task was to draw up a summary of the projected revenues and costs. The results are shown in Table 10.8. Note that the mall's revenues would come from two sources: The company would charge retailers an annual rent for the space they occupied and, in addition, it would receive 5% of each store's gross sales.

TABLE 10.8

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Year 5-17 Land Construction 30 20 30 10 Rentals Share of retail sales Operating and maintenance costs Real estate taxes 12 24 10 12 24 10 12 24 10