6) Impatient Corp. is considering building an oil rig in a recently discovered oil field of the coast of Mexico. The cost of constructing the oil rigis $1.4billion. The oilfield is expected toyield 5mbarrels annuallyover a period of 5 years. After five years, the value of the oil rig is zero. Thereisuncertaintyaboutenvironmental regulationsinthe U.S. thatcouldhaveasignificant effect on fracking in the U.S., which would have a major impact on the future oil price. If the new regulation is implemented, it would reduce fracking activity in the U.S. and the oil price is expected to increase to $100 per barrel. If the new regulation is not implemented, the oil price will stay at $50 per barrel. The probability of the regulation to be passed is estimated at 50%. Assume that the passage of the regulation will be decided between today and next year (i.e., between t=0 and t=1). Assume a discount rate of 10%. Jim Quick, the CEO of Impatient Corp. argues that the project has a positivenet present value and the firm should invest as quickly as possible to start production from next year. a) Compute the NPV of the project and check whether Jim Quick is correct that the NPV of the project is positive. Assume that the investment cost occurs today (t=0) and the oil rig produces barrels for five years starting next year (t=1 to t=5). (5 points) The board is not fully convinced by Jim's arguments and hires you as an outside consultant. In particular, the boardisconcerned about the uncertainty surrounding the oil price and wantstowait until next year to decide about the project. b) Compute the value of the project if Impatient Corp. delays the decision by one year before deciding to invest (if the investment is undertaken in period t=1, the oil rig produces 5m barrel for five years from t-2 to t-6). Based on your computations do you agree with the view of the board of with the CEO's view? (5 points)