Consider again the Sport Hotel example and Example 9.1. Suppose that if the franchise is accepted the value of the hotel is not $8 million but instead $7.50. Everything else, including first year expenses, is the same as shown in the example. Incorporating the real option, what probability of the franchise being granted would represent a "fair investment?" (that is, a probability such that any higher value would create a positive expected value) ??? %

[Sport Hotel example]

The following figure is from our course notes and is the same as figure 9.2 on page 272 of our textbook. complete hotel gives NPV of +S3 million abandon the project gives NPV of -$1 million complete hotel gives NPV of -$3 million abandon project gives NPV of -S1 million franchise is granted C D