Excel Online Structured Activity; Investment Timing Option; Decision$-$Tree Analyis

Kim Hotets is interested in developing a new hobel in Seoul. The compacy eatimabes that the hotel mould require an intal investment of $$18$ million. Kim expects the hotel mill produce postive cauh fows of $$2\mathrm{.}7$ milion a year at the end of each of the next $20$ years. The project's cost of capital is $1245.$

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and pertorm the required analvis to answer, the questions below, Do not round intermedate catalabons.

Open spreadibeet

a$.$ What is the project's net present value? A negative value should be entered with a negubive sigh. Froer your ansmer in milions. For example, an answer of $$1\mathrm{.}2$ million inould be entered as $1\mathrm{.}2.$ not $1,200,000.$ Do not round intermediate calculations. Round your anower to tmo decimal places.

$ $$ million the same time, there is a $50\%$ chance that the tax will not be imposed, in which case the yebly cash fows wall be s$3\mathrm{.}78$ mallion. Kim is deciding whether to proceed with the hotel today or to mat a year to find out whether the tax will be imposed. If Kim watis a yeac, the initigl inventeest mill remain at sis million. Aovume that al canh flows are discounted at $12$ th$.$ Use decision$-$tree ped with the project today or wat a year before deoding.

$$ ll makes sernes to proceed whe the proiect todey

an maken serse to mat a year teflone deciding$1$ Irvestment Tiring Option: Decision$-$Tree Analysis

$2$

$3$ No Timing Option:

$4$ Inital investment at $t=0($in milions$)$

$5$ Annual expected cash flow $($in millions$)$

$6$ Number of years cash flow expecled

$7$ Project cost of capital

$8$ Tining Option:

$9$ Initial investment at $t=1($in millions$)$

$10$ Number of years cash flow expected

$11$ Probability that tax will be imposed

$12$ Anhual CF $($in milions$)$ if tax imposed, Years $2$ to $21$

$13$ Probability that tax will not be imposed

$14$ Annual CF $($in mitions$)$ if tax not imposed. Years $2$ is $21$

Propect cost of capital

$16$

$17$ No Timing Opbion:

Formulas

$18q,$

$$ #N$/$A

$19$

$20$ Triming Option:

$21$ NPV $($in mitions$)$ at $t=0,if$ tax imposed

$22$ NPV if tax imposed, reduced to rero if NPV negative

$23$ NPV $($in mitions$)$ at $t=0,$ if tax not imposed

$24$ Expected NPV of project $($in milions$)$ at $!=0,$ with timing option

$25$

$26$ Should firm proceed now or wat to do the propect?

$\backslash$table$[[r,$aNA$],[r,$INA$],[r,$INA$],[r,$ANA$]]$

$27$

$$