1. Projected outflows First year (Purchase Right, Land, and Permits) $1,000,000 Second Year (Construct building shell $2,000,000 Third Year: (Finish interior and furnishings) $2,000,000 TOTAL $5,000,000
2. Projected inflows If the franchise is granted hotel will be worth: $8,000,000 when it opened If the franchise is denied hotel will be worth: $2,000,000 when it opened. The probability of the city being awarded the franchise is 50%.
Assume that everything is the same as in that problem except for two things: the probability that the city will be awarded the franchise is not 50% but is downgraded to 30%, and the third year projected outflow (finish interior and furnishings) is not $2 million but $1 million. Given these two changes, which of the following is true when the franchise is granted?