5. You are a private equity investor considering making a large infrastructure investment that will be done in two phases, with you presernving the option to back out of the investment after the first phase, if you so decide. 3. The initial cost for phase 1 is 51.5 billion and you expect to generate 5250 million in after- tax cash flows next year, growing at 2% for the next four years. Phase 1 ends after year 5. b. I you choose to go on to phase 2, you have to invest an additional 5 4.5 billion into the project at the end of year 5, bringing your total investment to 56 billion, and you will be entitlted to the cash flow from the project in perpetuity. Baszed on what you know now, you expect your year 5 cash flow to grow at 2% a year forever. The risk free rate is 2% (for all maturities), the cost of capital is 10% for both phases and the standard deviation in project cash flow (and in value) is 20%. 3. What iz the net present value of the first phase of the investment? (2 points) b. What are the parameters that you would use to value the option to invest in the second phaser (Estimate each input into the option pricing model) (2 points, with point off for each wrong input) Value of underlying asset [3) = strike Price (K) = r= Life of the option [t} = standard deviation (5] =