Please show ALL work! Use the following information and the real option to answer problems 22, and 23 Here is the ORIGINAL data of the Sporthotel...

Please show ALL work!

Use the following information and the real option to answer problems 22, and 23

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 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%.

1.Suppose that everything is the same as in that problem except one thing: the worth of the hotel, should the city be awarded the franchise, is not $8 million but some unknown smaller number. What must the new worth of the hotel when the franchise is granted be in order for the NPV of the Sporthotel project to be equal to exactly zero?

A. The value of the hotel should the city be awarded the franchise = $4 million

B. The value of the hotel should the city be awarded the franchise = $5 million

C. The value of the hotel should the city be awarded the franchise = $6 million

D. The value of the hotel should the city be awarded the franchise = $7 million

E. The value of the hotel should the city be awarded the franchise = $0 million

2.Return to the original data of the Sporthotel problem (that is, do NOT incorporate the change in problem #22) and assume that everything is the same except for two things: the probability that the city will be awarded the franchise is not 50% but is downgraded to 35%, 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?

A. The project’s NPV = $0.00 million

B. The project’s NPV = $0.25 million

C. The project’s NPV = $0.50 million

D. The project’s NPV = $1.00 million

E. The project’s NPV = $0.75 million