Return to the Sport Hotel example in the course notes and in Chapter 9 of the textbook. This problem will use the time line and the figures in the original problem - for example, the costs of building the hotel over three years, the value of the hotel when completed under the two scenarios, and the probability of the city being awarded the franchise.
Now consider the following two changes to that original problem. First, the projected expenditures in the first year is not as originally given at $1 million but instead is $1.155 million, and second, the probability of being awarded the franchise is not as originally estimated at 50% but is 41%.
Using these new values, and incorporating the real option to abandon after the first year, what would the NPV be at the decision node B on the decision tree?
$ million
Place your answer in millions of dollars using four decimal places. For example, the answer of nine hundred and seventy five thousand would be entered as 0.975. If applicable, indicate negative amounts with a minus sign in front of the number.