Read the mini case below carefully and answer the question which follows.

Lungelo has just received the following information from his private banker:

A start-up developer has just acquired 60 acres of property in Ngorongoro, Tanzania, to develop a safari wildlife centre. The safari centre will also include a hotel development. To generate operating capital for the hotel development, the developer is selling transferrable rights. The rights give the holder of the contract the right to purchase a lodge in the hotel development for a fixed price. Each lodge is half an acre. The agreements expire 6 months after they are signed.

The developer is offering the following inducement to get interest in the rights offer: A rightsholder can purchase the lodge for TSh25million at the end of 6 months if she enters the contract this week. The purchase price for a lodge increases to TSh40million on all contracts signed after this week, but the price of the rights will remain the same.

There is a rumour that a rare and spectacular breed of lion has been sited on the property, but this rumour has not been validated. If the rumour is true, the lion would become a huge tourist attraction. However, this type of lion is also known to be aggressive and dangerous.

Although Lungelo recognises the potential of the investment offered, he is not particularly interested in owning a lodge. However, he knows a few colleagues that would be interested in owning such a lodge.

Answer the following Question

Provide Lungelo with advice by discussing the risk and reward of purchasing a right during the inducement period. Secondly, propose an options structure that you believe might better suit Lungelo given the information available, and discuss the advantages and disadvantages of your proposal (15 marks)