Get help now

Recreational Properties

  • Pages 2
  • Words 296
  • Views 634
  • dovnload



  • Pages 2
  • Words 296
  • Views 634
  • Academic anxiety?

    Get original paper in 3 hours and nail the task

    Get your paper price

    124 experts online

    Framing the Decision

    Recreational Properties obtained a package of options to acquire three parcels that would allow them to develop a ski resort. The company paid ˆ500,000 for the package of options in June 2001. The options gave the company the right, but not the obligation, to acquire the three parcels at a (strike) price of ˆ10 million in June 2002.

    Furthermore, in order to develop the three parcels into a ski resort, the company needed leases from the European Union Environment Agency. When the company purchased the options, they expected the leasing agreement before December 2001.

    Proposal for Reasonable Investment

    From point 2, we’ve seen than securing the lease would allow the expected value to increase by 3.1725 million. This is therefore the maximum value we’re ready to pay based solely on the main expected value. Nevertheless, if the risk appetite is lower, we could calculate a value that ensures none of the options to have negative return. This value is equal to 1.3 million.

    Sensitivity Analysis

    Strategy Change with Probability Change

    A one-way sensitivity analysis has been done first based on a whatif table and then, thanks to decision tree tools. This first analysis shows that the breakeven point is at 48%, meaning that if Anders is off by a few percents on his estimate on the result of the lawsuit, not exercising the options becomes the best choice. Regarding the reputation, the breakeven point occurs at 68% . We have some more margins in that case but the conclusions are the same. A two-way analysis shows the safest areas. The (50%- 75%) is close to grey area where a small offset in the probability might change the decision.


    Based on here above comments, if it is not possible to assess more clearly the probability (by securing the lease or through a market.

    This essay was written by a fellow student. You may use it as a guide or sample for writing your own paper, but remember to cite it correctly. Don’t submit it as your own as it will be considered plagiarism.

    Need a custom essay sample written specially to meet your requirements?

    Choose skilled expert on your subject and get original paper with free plagiarism report

    Order custom paper Without paying upfront

    Recreational Properties. (2018, Feb 09). Retrieved from

    Hi, my name is Amy 👋

    In case you can't find a relevant example, our professional writers are ready to help you write a unique paper. Just talk to our smart assistant Amy and she'll connect you with the best match.

    Get help with your paper
    We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy