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What is the price of the real option

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You have purchased a piece of land for $1m and opened a new restaurant on it. The land is 15% larger than it needs to be, given your best estimates of likely demand. A piece of land that would have suited your best estimates would have been 20% cheaper, but you wanted to allow for room to make the restaurant bigger to prepare for an unexpected increase in demand. This extension will incur an additional cost of $100,000 but create an additional value of $450,000. What is the price of the real option described above?

Reference no: EM133061532

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