Assume that you have just been hired as a financial analyst by Tropical Sweets Inc., a mid-sized California company that specializes in creating exotic candies from tropical fruits. The firm's CEO has asked you to prepare a brief on possible outcomes of the project the company is planning. Tropical Sweets is considering a project that will cost $100 million. This project will run for 8 years. The cost of capital for this type of project is 10% and the risk-free rate is 6%. After discussions with the marketing department, you learn that there is a 60% chance of high demand, with future cash flows of $35 million per year. There is a 40% chance of low demand, with cash flows of only $15 million per year. Now suppose the firm decides to wait for 3 years before implementing this project and assume that the variance of the projects return when the option expires is 13.23%. Calculate the value of the wait option using Black and Scholes option pricing model.

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