Assumptions 1. The decision to invest in the Mark II must be made after three years, in 1985. 2. The Mark II has an investment requirement of $925 million, which is taken as fixed. 3. Forecasted cash inflows of the Mark II have a present value in 1985 of $832 million and $481 (832 / 1.23 = 481) million in 1982. 4. The future value of the Mark II cash flows is highly uncertain. This value evolves as a stock price does with a standard deviation of 40% per year. 5. The annual interest rate is 10%. Interpretation The opportunity to invest in the Mark II is a three-year call option on an asset worth $481 million with an exercise price of $925 million. How does the value of the option to invest in the Mark II in 1982 change if: a. The investment required for the Mark II is $825 million (vs. $925 million)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Option value $ b. The present value of the Mark II is 1982 is $525 million (vs. $481 million)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Option value $ c. The standard deviation of the Mark II's present value is only 25% (vs. 40%)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Option value