Return to the Sport Hotel example in the course notes and in Chapter 9. Suppose that everything stays the same as was presented in the original problem except for two things: the projected expenditures in the first year is not $1 million but instead is $1.405 million, and the probability of being awarded the franchise is not 50% but is 37%. Using these new values, and incorporating the real option, what would the NPV be at the decision node B on the decision tree?

Discount rate is zero.

The sport hotel and tradiitonal NPV: Hyatt international is now deciding whether or not to build a hotel next to a soon to be built state of the art hockey arena. the hotel is in a city that is one of three vying for an NHL franchise. Hyttts plan is for the property to be the official hotel of the team. the NHL will announce their franchise decision in exactly one year. If the franchise is granted, the games will begin in two years from that point in time, or three years from today. to be the official hotel the property must be ready for gusts when the first game is played. It takes exactly three years to build the hotel.

Projected Outflows from Sport Hotel Project (all figures in millions of dollars)

First Year (purchase right, land and permits) -- $1.405

second year (construct building shell) -- $2

third year (finish interior and furnishings) -- $2

total: $5.405

Return to the Sport Hotel example in the course notes and in Chapter 9. Suppose that everything stays the same as was presented in the original problem except for two things: the projected expenditures in the first year is not $1 million but instead is $1.405 million, and the probability of being awarded the franchise is not 50% but is 37%. Using these new values, and incorporating the real option, what would the NPV be at the decision node B on the decision tree? Discount rate is zero. The sport hotel and tradiitonal NPV: Hyatt international is now deciding whether or not to build a hotel next to a soon to be built state of the art hockey arena. the hotel is in a city that is one of three vying for an NHL franchise. Hyttts plan is for the property to be the official hotel of the team. the NHL will announce their franchise decision in exactly one year. If the franchise is granted, the games will begin in two years from that point in time, or three years from today. to be the official hotel the property must be ready for gusts when the first game is played. It takes exactly three years to build the hotel. Projected Outflows from Sport Hotel Project (all figures in millions of dollars) First Year (purchase right, land and permits) -- $1.405 second year (construct building shell) -- $2 third year (finish interior and furnishings) -- $2 total: $5.405