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CONCEPTUAL ANALYSIS OF REAL OPTIONS The destruction that Hurricane Katrina brought to the Gulf Coast in 2005 devastated the city of New Orleans as well as the Mississippi Gulf Coast. The burgeoning casino gambling industry along the Mississippi coast was nearly destroyed. CGC Corporation owns one of the oldest casinos in the Biloxi, Mississipi, area, and it was not destroyed by Katrina’s tidal surge because it is located several blocks off the beach. Because of the near-total destruction of many of the gambling properties located along the beach, CGC is considering the opportunity to make a major renovation in its casino. The renovation would transform the casino from a second-tier operation into one of the top attractions along the Mississippi Gulf Coast. The question that the firm faces involves placing a value on the opportunity to renovate the property. CGC’s analysts estimate that it would cost $50 million to do the renovation. However, based on the uncertainties associated with the redevelopment of the region, the firm’s financial analyst estimated that the casino, under the current conditions, would be valued at only $45 million. Alternatively, CGC could continue to operate the casino, in which case it expects to realize an annual rate of return of 10% on the value of the investment. Moreover, the estimated return of 10% is highly uncertain. In fact, the volatility (standard deviation) in this rate of return is probably on the order of 20%, while the risk-free rate of interest is only 5%. a. What is the NPV of renovation of the property if the renovation is undertaken immediately? b. What is the value of having the option to renovate in the future? (Hint: You can assume that the option never expires.)
On January 1, 2013, Fisher Corporation paid $2,290,000 for 35 percent of the outstanding voting stock of Steel, Inc. and appropriately applies the equity method for its investment. Any excess of cost over Steel s book value was attributed to goodw..
Moving Company purchased goods for resale from Pancake Party INC. on December 29, year 1. Terms of purchase were FOB Destination, 2/10, n/30. The gross purchase amount was $12,000, the goods arrived on January 2, year 2, and Moving Company paid the n..
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Alpha has an expected return of 13.0% and a beta of 1.50. The total value of your current portfolio is $90,000. Illustrate what will the expected return and beta on the portfolio be after the purchase of the Alpha stock?
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the net income reported on income statement of the present year was 92000.depreciation recorded on store equipment for
First, consider Lisa’s savings. She began working at age 20 and began making an annual contribution of $2,000 at the first of the year beginning with her first year. Create a chart summarizing the details of the investment for both Bob and Lisa. Expl..
alfred a 33 percent profits and capital partner in pizzeria partnership requires help in adjusting his tax basis to
Inventories - Cost of goods manufactured and Calculate the cost of goods manufactured for this company
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