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 Sam if the franchise is awarded or 12m if the franchise was denied Additionally, the hotel would incur $1m of cost in year 1 followed by $2m in year 2 and 1 Let's consider the following changes to the original problem if the tranchise is awarded the hotel will be worth 9.60 instead of Som and denied the franchise, the hotel will only be worth 1.20. Additionally, The first year will be 1.30 but the costs in year 2 and 3 will remain the same Al other aspects of the problem are the same as originally presented, such as the costs per year. Assume that the probability of obtaining the tranchise is 40% incorporating these new hotel values from above what is new NPV the project? ( 58.7 - 58.44 OHN OSA.N - 18.82 SUBMIT ANSWER costs in incurred in real option
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- You are thinking bout purchosing a Bahama Buck' franchise. You loved going to Bahama Bucks in collego and thera is one for solo in Phoenix and you think this could bo on awesome location. The ownor is asking $2M. The currant location has a net incomo of $100,000 a your. Your requirod roto of return is 10% and you intondad to hold It for 16 years. What is the current voluo to you for this Bahoma BUcks?Kay Sadilla is considering investing in a franchise that requires an initialoutlay of $75,000. She conducted market research and found that after-taxcash flows on the investment should be about $15,000 per year for the next7 years. The franchiser stated that Kay would generate a 20 percent return.Her cost of capital is 10 percent. Find the following:a. The PVBb. The PVCc. The NPVd. The IRRAssume you are the finance manager of Salalah Mineral Water Company, and the company is considering investing in one of the three projects. The life for the Projects Amal, Sara and Project Farahl is 5 years. Project Amal costs OMR. 17030, and Project Farah costs OMR.17030. The discount rate/cost of capital is 2.55%. Required: Use the following techniques to help company to decide which Machine is better and justify why? a) Payback period b) Discount payback period c) Net Present Value d) Present value index -Profitability index. Year Project Amal Project Fatima 1 7440 8300 2 8096 9609 3 5440 8300 4 9096 9609 9696 9508 LO
- 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…Question: What is the project NPV? You have determined in your mind that you would like to have a businessof your own, although your father runs a family restaurant in yourlocal city. You have therefore, decided to have a medium size snackand cocktails bar which will accommodate the cruise ship passengerswho visit your city. You plan to keep the business for five yearsafter which you will sell it off to your brother John for $2,000,000and go off to do your Master’s Degree in the UK. Though you will beoccupying the establishment from your grandmother for free, you havedecided that you need to make some improvements to the property whichwill cost you $1,500,000. Additionally, you will spend $275,000 inbar stools, tables and decorations. If this space had been leased out,it would have fetched a lease rental of $75,000 per year. You willdepreciate the assets over 7 years using MACRS. You have determinedthat you would need an average cash balance of $15,000 and inventoryof $20,000 while…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…
- Your neighborhood laundromat is for sale and a friend is considering investing in this business. Your friend has asked for your financial advice regarding this endeavor. For the business alone and no other assets (such as the building and land), the purchase price is $250,000. The net cash flows for the project are $30,000 per year for the next 5 years. The plan is to borrow the money for this investment at 6%. You will need to submit a presentation sharing your recommendation and you must address the following questions:Part A: Calculate the Net Present Value and Payback Period: What is the net present value of this project? Calculate the simple payback period for this project. Your desired payback period is 5 years. How long is the payback period for this project? Use the following template to complete the Unit 4 Excel spreadsheet (IP): Unit 4 IP Assignment Template Part B: Evaluate the investment and provide calculations for an alternative deal: How would you evaluate this…A business is considering purchasing a piece of new equipment for $200,000. The equipment will generate the following revenues: Year 1: $50,000 Year 2: $50,000 Year 3: $50,000 Year 4: $60,000 The machine can be sold at the end of the year four for $25,000. Assume a discount of 8%. Based on your above calculations, should they purchase the new piece of equipment? Why? 2. Carl and Melissa have monthly income of $6000. They want to buy a house for $200,000 and make a down payment of $40,000. The monthly payment on a 15-year mortgage will be $2,000 and a 30- year mortgage, the monthly payment will be $1,350. Which of the following would you recommend? Why? A. 15 year option B. 30 year option C. They cannot afford to buy a house at this point1. An investor is pondering on whether to invest in a siomai franchise or in a printing press company. He had his staff analyze the cost benefits that he would get from the two business ventures and they came up with this report. A. The siomai franchise would need Php 800 000 as capital. It has a 60-percent chance of profiting Php 400 000; a 15-percent chance of profiting Php 600 000; and 25- percent chance of losing the capital entirely. B. The paper manufacturing company would need Php 800 000 as capital. It has a 35- percent chance of earning Php 1000 000 and a 65-percent chance of losing the capital entirely. C. Which between the two business ventures should the investor invest his Php 800 000?
- Bold’s Gym, a health club chain, is consider-ing expanding into a new location: the initial investment would be $1 million in equipment, renovation, and a 6-year lease, andits annual upkeep and expenses would be $75,000 (paid at thebeginning of the year). Its planning horizon is 6 years out, andat the end, it can sell the equipment for $50,000. Club capacityis 500 members who would pay an annual fee of $600. Bold’sexpects to have no problems filling membership slots. Assumethat the interest rate is 10%. (See Table S7.2 .)a) What is the present value profit/loss of the deal? b) The club is considering offering a special deal to the mem-bers in the first year. For $3,000 upfront they get a full 6-year membership (i.e., 1 year free). Would it make financial sense tooffer this deal?Suppose a firm has two business options to choose from and has asked you, a Business Mathematics student, to help it make a decision. Option "A" requires an immediate cost of $25,000 along with "upgrade costs" of $4,000 in year 3 and $7,500 in year 6. The returns from these investments begin in year 2 and are estimated to be $2,000 per year for 3 years, $4,000 per year for the next 3 years, and then $7,000 in years 8 and 9, respectively. The only return in year 10 is a residual value of $6,000. Option "B" requires a cost today and in years 1 and 2 of $7,000 and has estimated returns beginning in year 4 and ending in year 10 of $5,000 per year. There will also be a residual value of $2,000 in year 10. Using Excel's IRR function, find the Rate of Return for each of the two investment options available to the business based on the information given. Assume the business's expected return on investment is 14 percent. Which option would you recommend? The rate of return on option A is %.…You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on a proposed project. Up-front cost: $100,000 • Next year's revenue: $15,000 . Real interest rate: 7% • Depreciation rate: 3% ● How much profit does the project yield, and should your client invest in the project? No, the client should not invest because the project yields a $10,000 loss. Yes, the client should invest because the project yields a $50,000 profit. No, the client should not invest because the project yields a $15,000 loss. Yes, the client should invest because the project yields a $15,000 profit.