Save All Answers Save and Submit QUESTION 1 5 points Save Answer Here is the ORI

Question

Save All Answers Save and Submit QUESTION 1 5 points Save Answer Here is the ORIGINAL data of the Sporthotel problem: 1. Projected outflows First year (Purchase Right, Land, and Permits) $1,000,000 Second Year (Construct bulilding shell $2,000,000 Third Year: (Fini hotel will be worth: $2,000,000 when it opened. The probability of the probability that the city will be awarded the franchise is not 50% but is downgraded to million. Given these two changes, which of the following is true when the franchise is granted? sh 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 the ity being awarded the tarchise is50%. As met everything s the s eas in at le except fo two things: a. The project's NPV $0.50 million b. The project's NPV-$1.00 million The project's NPV-$0.75 million d. The project's NPV-$0.25 million e. The project's NPV = $0.00 milion QUESTION 2 3 points Save Answer You write a put option on a stock for a premium of $1. The exercise price is $6.50. What is the option's profit or loss if just prior to expiration the stock price is $8.507 c. $0.5 Od.($1.00) e$1.00 QUESTION 3 4 points Save Answer Which of the following represents a SHORTCOMING of the net present value ruile of capital budgeting? a. It fails to measure the change in wealth from undertaking a project bit fails to consider the impacts of depreciation on cash flows fails to consider new information once the project is underway d. It cannot be used in a sensitivity analysis e. It fails to incorporate time value of money O c. QUESTION 4 5 points Save Answer

Explanation / Answer

2.

Excercise price = $6.50

Stock price = $6.50

Put premium = $1.

Since, stock price is equal to stock price, so the investor incure loss of put premium value that is $1.

Value of loss is $1 or value of profit is -$1.

Option (D) is correct answer.

3.

One of teh shortcomming of NPV method is that it fel to consider new information once the project is underway.

Option(C) is correct answer.

For question 1, Discount rate is not provided, so NPV of cash flow cannot be calculated.

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