Question

Status:

$1$

$$

V

$3$ V

V

$5$

$.$ V

$?$

$?$

$?$

$10$

You may attempt this question $2$ more times for credit.

This question is a variant of the Sport Hotel example that was presented in class, in the class notes, and in the Real Option chapter. Suppose that in the example, the first year expenditures that include the purchase of plans and permits is not $$1$ million but instead $$0\mathrm{.}8$ million. All other aspects of the problem are the same as originally presented. Incorporating these new values, the probability that the city is awarded the franchise at $50\%,$ and the real option, what is the new NPV of the project?

$s$ million

Place your answer in millions of dollars using at least three decimal places. For example, the answer of nine hundred seventy five thousand would be entered as $0\mathrm{.}975$ and not as $975000.$