Answer to Question #8835 in Finance for Lee

Question

KF can obtain an option on a site for $100,000 on 31 Dec 2012. The option would give KF the right to purchase the site for $2.6million on 31 Dec 2017. It is estimated that similar sites will then have a market value of $3 million. Calculate the present value of purchasing the option now and compare it with the present value of purchasing the land outright later on. Which is the better alternative? Why?