4 Oution Soft. AZ O Check My Work (remaining Boek Investment Timing Option: Option Analysis The Kams al Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates the project would cost $8 milion today, Karns estimates that once drilled, the oil will generate positive net cash flows of $4 Million a year at the end of each of the next years. Although the company is fairly confident about its cash flow forecast, in 2 years it will have more information about the local geology and about the price of oil, Karns estimates that if it waits 2 years then the project would cost $9 million. Moreover, if it was 2 years, then there is a chance that the net cash flows would be $4.2 million a year for 4 years and a 10% chance that they would be $2.2 million a year for 4 years. Assume all cash flows are discounted at 104. Use the Black-Scholes model to estimate the value of the option. Assume the variance of the project's rate of return is 0.512 and that the risk free rate is? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1,234 million should be entered 28 1.234, not 1,234,000. Hound your answer to three decimal places. $ million Check My Work (s remaining) A 0 cony Problem 14-07 (Investment Timing Option Option Analysis) Question of