A2 You have 29 minutes, 34 seconds left.This question relates to the SportHotel problem we covered in class (and is also in your textbook and course workbook). In the original problem, your firm would build a hotel that would either be worth $8m if the franchise isawarded or $2m if the franchise was denied. Additionally, the hotel would incur $1m of cost in year 1 followed by $2m in year 2 and $2m in year 3.Let's consider the following changes to the original problem. If the franchise is awarded, the hotel will be worth 9.20 instead of $8m and if denied the franchise, the hotel will only be worth 3.70. Additionally, the costs in incurredin the first year will be 0.90 but the costs in year 2 and 3 will remain the same.All other aspects of the problem are the same as originally presented, such as the costs per year. Assume that the probability of obtaining the franchise is 50%. Incorporating these new hotel values from above, and the realoption, what is the new NPV of the project?$1.55$5.45$6.45$1.70$1.65C

Information on Orginal problem: Cash inflows:If the franchise is awarded - $8mIf the franchise was…

Answered: You have 29 minutes, 34 seconds left.…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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This question relates to the SportHolel problem we covered in class (and is also in your textbook and course workbook). In the original problem, your firm would build a hotel that would either be worth 58m if the franchise is or the franchise was Additionally, the hotel would incur in year 1 by in year 2 and $2m in year Let's consider the foliowing changes to the original problem. If the franchise is awarded the hotel wil be worth 9.60 instead of $8m and if denied the franchise, the hotel will only be worth 3.20. Additionally, the costs in incurred in the first year will be 1.30 but the costs in year 2 and 3 will remain the same. All other aspects of the problem are the same as originally presented, such as the costs per year. Assume that the probability of obtaining the franchise is 40%. Incorporating these new hotel values from above, and the real option what is the new NPV of the project? $5.76 $0.44 Ⓒ5-0.04 14.76 Ⓒ10.92 SUBMIT ANSWER
Consider a plot of land. You can construct an office building at a cost of $5m or a hotel at a cost of $7m. For the office building you expect an NOI in year 1 of $240,000 and an NOI in year 2 of $400,000. For the hotel you expect an NOI in year 1 of $360,000 and an NOI in year 2 of $500,000. After year 2, the NOI will grow at 4% for both properties. Your discount rate is 10% in both cases. What is the estimated value of your plot of land?
Please show me the solution, thanks. Jerry Dickson has been approached by the franchise sales representative of a majorhotel chain. The sales representative is trying to interest Jerry in building one of thefranchise brand's full-service hotels. The hotel will cost $8,000,000 to build and willconsist of 200 rooms. Mortgage payments on the hotel will be $750,000 per year andother nonoperating expenses will be $250,000 per year.At an assumed 60% occupancy level, the rooms manager has calculated thatpayroll and related expenses and other expenses for rooms is $45 per room, andundistributed operating expenses related to operating the hotel are $1,000,000.The hotel is projected to make an operating income of $125,000 per year from theF&B department and $50,000 from all other non-rooms departments.Jerry is interested in the project if he can achieve a 12% return on the investment,assuming a 40% tax rate. Question: Utilizing the Hubbart room rate formula, what is the room rate…
Wei-Ping's consul ting firm needs new quarters. A downtown office building is ideal. The company can either buy or lease it. To buy the office building will cost $6 000 000. If the building is leased, the lease fee is $400 000 payable at the beginning of each year. In either case, the company must pay city taxes, maintenance, and utilities. Wei-Ping figures that the company needs the office space for only 15 years. Therefore, it will either sign a 15-year lease or buy the building. If it buys the building, it will then sell the building after 15 years. The value of the building at that time is estimated to be $15 000 000. What rate of return will Wei-Ping's firm receive by buying the office building instead of leasing it? Yanıt:
2. You are thinking about starting a restaurant franchise in Irvine, California. You are considering two choices – either a P.F. Chang’s or a Dairy Queen. Unfortunately, you only have an opportunity to build one or the other. The details are the following: P.F. Chang’s: The franchise fee and cost of the building are $1,000,000. After careful calculation, you believe the restaurant will generate $150,000 a year in positive cash flow for the next 20 years at which point the franchise rights expire and the building is worthless (ie. There’s no extra money at the end). Discount rate is 10%. Dairy Queen: The franchise fee and cost of the building are $500,000. After careful calculation, you believe the restaurant will generate $80,000 a year in positive cash flow for the next 20 years at which point the franchise rights expire and the building is worthless (ie. There’s no extra money at the end). Discount rate is 10%. a) What are the two projects’ IRRs and which franchise would you…
A colleague of yours is planning to start a small, plastic components manufacturing business. He has invited you to be a partner. Best estimates for the total depreciable capital for equipment which includes a compounder and extruder is $500,000. Expected sales amount to $250,000 annually and total manufacturing costs without depreciation was estimated to be about $96,500 yearly. If equipment can be purchased and installed in one year and the project has a ten year life, perform a complete discounted cash flow analysis and make a decision if you should invest or not. Assume straight-line depreciation for ten years at which point the equipment salvage value will be zero. Also assume that uou can invest at 10% interest in other opportunitites for comparison.
A firm is considering the installation of an automatic data processing unit to handle some of its accounting operations. Machine for that purpose may be purchased for P 2M or may be leased for P 800,000 for the first year and P 100,000 less every year until the end of the 4th year. If money is worth 15%, which alternative is better and by how much?
A Firm Considering The Installation Of An Automatic Data Processing Unit To Handle Some Of Its Accounting Operations. Machines For That Purpose May Be Purchased For P20, 000 Or Maybe Leased For P 8, 000 For The First Year And P 1, 000 Less Every Year Now And Then Until The End Of The 4th Year. If Money Is Worth 15%, Is It Advisable To Rent Or Buy The Machine?
Little Rhody Manufacturing needs to purchase a new central air-conditioning system for a plant. There are two choices. The first system costs $70,000 and is expected to last 6 years, and the second system costs $102,000 and is expected to last 9 years. Assume that the opportunity cost of capital is 12 percent. Which air-conditioning system should you purchase? Show your work. Hint: There are two ways to solve this. The hard way: Use formula for EAC The easy way: TMV exercise and solve for PMT assuming annual P/Y. Whichever has the lower PMT, go with that system. PV = cost. FV = 0, I/Y = 12%, N = Number of years. P/Y = 1
A firm considering the installation of an automatic data processing unit to handle some of its accounting operations. Machines for that purpose may be purchased for P20,000, or maybe leased for P8,000 for the first year and P1,000 less every year now and then until the end of the 4th year. If money is worth 15%, is it advisable to rent or buy the machine?
Rogers Inc.is considering investing $320,000 in hardware and software to develop a business-to-business (B2B) portal. The company expects the portal to save $40,000 each year for seven years of its useful life. Please figure out the payback period. b) AND its accounting rate return
A firm considering the installation of an automatic data processing unit to handle some of its accounting operations. Machines for that purpose may be for P20,000, or may be leased for P8,000 for the 1st year and P1,000 less every year now and then until the end of the 4th year. If money is worth 15%, is it advisable to rent or buy the machine.

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