An Investor Is Considering Renovating a Building A) 975%
B) 10

question 6

Multiple Choice

An investor is considering renovating a building. The total cost of renovation is expected to be $100,000, of which 75% can be borrowed. Given the after-tax cash flows to the equity investor as showed below, what is the incremental return from renovating? $$\begin{array} { l r r r r r } &1&2&3&4&5&\\\text { ATCF after renovation } & \mathbf { 9 , 2 0 0 } & 10,000 & 12,000 & 14,000 & \mathbf { 3 1 6 , 0 0 0 } \\\text { ATCF-no renovation } & 10,000 & 10,200 & 10,440 & 10,600 & 160,900\end{array}$$

• A) 9.75%
• B) 10.14%
• C) 15.32%
• D) 12.67%

---

Definitions:

Nash Equilibrium

A concept in game theory where each player's strategy is optimal given the strategies of all other players, resulting in no incentive to deviate.

Maximin Strategy

The maximin strategy is a decision rule used under uncertainty, where the decision maker selects the option with the least worst outcome, maximizing the minimum gain.

Equilibrium

A condition in which the equilibrium of market supply and demand stabilizes prices.

Maximin Strategy

A decision rule used in game theory and decision-making to maximize the minimum gain that can be achieved.