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I would like to open up a gym. The initial investment would be $13 million...

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Finance

I would like to open up a gym. The initial investment would be $13 million with a discount rate of 20%. The gym has two equally likely outcomes: an optimistic outcome is $3 million in perpetual cash flows; a pessimistic outcome is $1 million in perpetual cash flows. Additionally, if the optimistic outcome occurs it allows for expanding the idea to 9 additional locations at the end of the first year. What is the value of the option to expand?

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