The Event Center is considering purchasing a vacant lot that has opened next to their...
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The Event Center is considering purchasing a vacant lot that has opened next to their property for $1.4 million. If the property is purchased, the plan is to spend another $6 million today (t=0) to build a hotel on the property. The cash flows from the project will depend critically on whether the state imposes a tourism tax in this year's legislative session. If the tax is imposed, the hotel is expected to produce cash flows of $500,00 at the end of each of the next 15 years. If the tax is not imposed, the hotel is expected to produce cash flows of $1.2 million at the end of each of the next 15 years. The projects WACC is 12%. Assume at the outset that the company does not have the option to delay the project. What is the NPV if the tax is imposed? What is the project's NPV without the tax? What is the NPV assuming there is a 45% chance that the tax will be imposed? What is the projects IRR? Would you recommend this project
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