Reference no: EM133111853
Question - The next day, Norman promises the city council that he will proceed with the investment and files the appropriate documents with the office of the assessor. These give him the sole right to his project. He is still wondering if he made the right decision, or, if he can back out of it some way while still earning some money. He decides to contemplate his alternatives in the ambience of the Dew Drop Inn, a dive bar only two blocks from City Hall. Upon entering, he spots Doug Ford, another investor in Ontario income properties, at the end of the bar. He asks Ford what he should do in regard to his project. After listening to the project details, Ford offers to pay Norman a fee today in exchange for the rights to the project. After a moment's thought, Norman decides that the absolute minimum he would accept to sell the project rights today is $8,000,000.00. He decides to ask Doug for $10,800,000.00, and knowing Doug loves to speculate on commercial real estate, Norman believes that he would accept this deal at that price.
Required -
a. Would Norman be better or worse off if he accepts an offer of $10,800,000.00 from Doug for the project rights rather than investing himself?
b. Sharing Norman's beliefs about the probability of a 20% return, would Ford really be willing to pay Norman his asking price for the project rights?
c. Knowing Doug is a risk-lover, could Norman increase his asking price over $10,800,000.00 and still be sure that Doug would be willing to buy the rights?
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