Kanga Resorts Is Interested In Developing A New Facility In Asia The Company Est

Kanga Resorts is interested in developing a new facility in Asia. The company estimates that the hotel would require an initial investment of $14 million. The company expects that the facility will produce positive cash flows of $2.6 million a year at the end of each of the next 10 years. The project’s cost of capital is 11%.

a. Calculate the expected net present value of the project.

b.   The company recognizes that the cash flows could, in fact, be much higher or lower than $2.6 million, depending on whether the host government imposes a large facility tax. One year from now, the company will know whether the tax will be imposed. There is a 40 percent chance that the tax will the imposed, in which case the yearly cash flows will be only $2 million for 10 years. At the same time, there is a 60 percent chance that the tax will not be imposed, in which case the yearly cash flows will be $3 million for 10 years.   The company is deciding whether to proceed with the facility today or to wait 1 year to find out whether the tax will be imposed. If it waits year, the initial investment will remain at $14 million, and incoming cash flows will be delayed 1 year. Assume that all cash flows are discounted at 11 percent.   Using decision tree analysis, calculate the value of the real option to wait a year before deciding. What would you recommend to the company.

c. Apart from real options, discuss 3 qualitative factors that the company should consider when making its decision on accepting the new project.

Stuck With A Lot Of Homework Assignments And Feeling Stressed ? Take Professional Academic Assistance & Get 100% Plagiarism Free Papers

Get Help By Expert

For students who are struggling with essay writing, we can be a lifesaver. We offer essay writing help for students of all levels, from elementary school to college. Our team of experienced assignment writers can help you with any type of essay, from persuasive essays to comparative essays. So if you're struggling with essay writing, don't hesitate to contact us for assistance.


Looking For Plagiarism Free Answers For Your College/ University Assignments.