An offshore oil Company has discovered new oil reserves of 70 million barrels where the cost of developing these reserves is approximately $430 million. The company has the right to exploit these reserves for the next 20 years. The development lag is 3 years. The current price and production costs are $60/barrel and $30/barrel, respectively. The cost of delay is 4% p.a, the risk-free rate is 10% p.a; the variance in oil prices is 0.04. What is the probability that the option will pay off? (Hint. You should calculate N(d₂))

	a.	0.3210
	b.	0.2310
	c.	0.9896
	d.	0.9993
	e.	none of the above

If the free cash flow is $100, net interest income is $50, dividends are $150, the firms treasurer will:

	a.	Raise new debt (increase borrowing)
	b.	Buy additional debt securities (increase lending)
	c.	Do nothing
	d.	Pay more dividends
	e.	Reduce existing debt (reduce borrowing)