Kim hotels is interested in developing a new hotel in seoul. the company estimates that the hotel would require an initial investment of $18 million. kim expects the hotel will produce positive cash flows of $2.7 million a year at the end of each of the next 20 years. the project's cost of capital is 13%.
a. what is the project's net present value? negative value, if any, should be indicated by a minus sign. enter your answers in millions. for example, an answer of $10,550,000 should be entered as 10.55. do not round intermediate calculations. round your answer to two decimal places. $ million
b. kim expects the cash flows to be $2.7 million a year, but it recognizes that the cash flows could actually be much higher or lower, depending on whether the korean government imposes a large hotel tax. one year from now, kim will know whether the tax will be imposed. there is a 50% chance that the tax will be imposed, in which case the yearly cash flows will be only $1.8 million. at the same time, there is a 50% chance that the tax will not be imposed, in which case the yearly cash flows will be $3.6 million. kim is deciding whether to proceed with the hotel today or to wait a year to find out whether the tax will be imposed. if kim waits a year, the initial investment will remain at $18 million. assume that all cash flows are discounted at 13%. use decision-tree analysis to determine whether kim should proceed with the project today or wait a year before deciding.