Solution-Estimate the value of the abandonment option to

Estimate the value of the abandonment option to disney

Reference no: EM13555998

Disney is considering entering into a joint venture to build condominiums in Vail, Colorado, with a local real estate developer. The development is expected to cost $1 billion overall and, based on Disney's estimate of the cash flows, generate $900 million in present value cash flows. Disney will have a 40% share of the joint venture (requiring it to put up $400 million of the initial investment and entitling it to 40% of the cash flows) but it will have the right to sell its share of the venture back to the developer for $300 million.

a. If the standard deviation in real estate values in Vail is 30% and the riskless rate is 5%, estimate the value of the abandonment option to Disney.

b. Would you advice Disney to enter into the joint venture?

c. If you were advising the developer, how much would he need to generate in present value cashflows from the investment to make this a good investment?

Reference no: EM13555998

Questions Cloud

Constant growth rate assumption : Compute the justified P/B based on forecasted fundamentals, consistent with the residual income model and a constant growth rate assumption.

Determine at what angles do the third bright spots occur : when laser light of wavelenght 633.8nm passes through a diffraction grating, the first bright spot occurs at +- 18.6 degrees from the central maximum. At what angles do the third bright spots occur

The efficiency of oxygen delivery with a cooperative protein : Use the same values reported for "Efficiency of Oxygen Delivery With a Cooperative Protein", but this time let n=1 instead of 2.8. What is the overall efficiency of oxygen delivery with this protein

Explain the rate constant for a certain reaction : The rate constant for a certain reaction is = 4.60×10-3 s^-1. If the initial reactant concentration was 0.900 M , what will the concentration be after 5.00 minutes

Estimate the value of the abandonment option to disney : If the standard deviation in real estate values in Vail is 30% and the riskless rate is 5%, estimate the value of the abandonment option to Disney.

What is the average force applied to the car : A 1000 kg car is traveling at a constant speed of 30 m/s, what is the average force applied to the car

Explain sulfuric acid per milliliter of the diluted solution : To prepare a fertilizer, an engineer dilutes a stock solution of sulfuric acid by adding 24.7 L of 5.25 M acid to enough water to make 500. L. What is the mass of sulfuric acid per milliliter of the diluted solution. 4 significant figures.

How would preference contribute to a positive liquidity : The liquidity premium hypothesis also holds that issuers of bonds prefer to issue long-term bonds. How would this preference contribute to a positive liquidity premium?

Find which force holds it together : Find the electrical and gravitational forces between the proton and electron in a hydrogen atom. Which force holds it together

User Account

All Pages

Estimate the value of the abandonment option to disney

Reference no: EM13555998

Reference no: EM13555998

Questions Cloud

Reviews

Write a Review

Cost Accounting Questions & Answers

Cost accounting assignment

Prepare the journal entries

Advise as to the liability of all the parties

Prepare revenues budget

Effect of exchange rate changes on cash and cash

Corporate governance

Cost-benefit analysis

Non-annual interest rates and annuities

Job costing in service organizations

Accounting for bad debt expense

Accounting and partnership problems

Development of relevant cash flows

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT