Calculate the expected net present value of the project

Assignment Help Finance Basics

Reference no: EM13265022

Calhoun Resorts is interested in developing a new facility in Toronto. The company estimates that the hotel would require an initial investment of $10 million. The company expects that the facility will produce positive cash flows of $3,000,000 a year at the end of each of the next 5 years. The project's cost of capital is 12%.

a. Calculate the expected net present value of the project.

b. A hotel tax may be imposed that would affect cash flows. In one year, the company expects to know whether the tax will be imposed. The company believes there is a 40% change that the tax will be imposed, in which case annual cash flows will be $2.5 million. If the tax is not imposed, annual cash flows will be $3.2 million . It is deciding whether to proceed with the facility today or to wait 1 year to find out whether the tax will be imposed. If it waits a year, the initial investment will remain at $10 million, and incoming cash flows will be delayed 1 year. Cost of capital will remain at 12%.

If the company waits one year, calculate the project's NPV in Year 1 with restrictions and without restrictions.

c. Identify 3 qualitative factors in addition to the value of the real option that the company should consider in making its decision.

Reference no: EM13265022

Questions Cloud

Begin with solid sodium sulfate decahydrate : Describe in detail a way of preparing 500 ml of solution that is 0.02500 M in sodium ions. Start with solid sodium sulfate decahydrate.

Calculate the value of the thermal voltage : Calculate the value of the thermal voltage, VT at -400C, 00C, +400C and +1500 C. At what temperature is VT exactly 25mV

How much energy is in each pulse : A laser used to weld detached retinas emits light with a wavelength of 654nm in pulses that are 20.2ms in duration. How much energy is in each pulse

Describe ways you might refine general search : Describe ways you might refine general search to reduce the number of results from your search. (CINAHL, Medline etc.) What about the advanced search options using Boolean limiters such as AND.

Calculate the expected net present value of the project : Identify 3 qualitative factors in addition to the value of the real option that the company should consider in making its decision.

Explain starting with solid sodium chloride : starting with solid sodium chloride, how would you make one liter of 2.000 ppm sodium chloride solution

What is mrp5 minus mrp2 : If 2-year and 5-year Treasury notes both yield 10%, what is the difference in the maturity risk premiums (MRPs) on the two notes; that is, what is MRP5 minus MRP2? Round your answer to two decimal places.

Define what does the given code do : What does the following code do. class MyListener implements ActionListener public void actionPerformed (ActionEvent e) MyListener listener = new MyListener Timer t = new Timer(interval, listener)

Explain what is the total mass of mercury : If the concentration of mercury in the water of a polluted lake is 0.375 ug (micrograms) per liter of water, what is the total mass of mercury in the lake, in kilograms, if the lake has a surface area of 14.65 square miles and an avery depth of 35..

User Account

All Pages