Assumptions 1. The decision to invest in the Mark II must be made after three years, in 1985 . 2. The Mark II investment is double the scale of the Mark I (note the expected rapid growth of the industry). Investment required is $995 million (the exercise price), which is taken as fixed. 3 . Forecasted cash inflows of the Mark II are also double those of the Mark I, with present value of $902 million in 1985 and 902 (1)3=$522 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 43% per year. (Many high-technology stocks have standard deviations higher than 43%.) 5. The annual interest rate is 8%. Interpretation The opportunity to invest in the Mark II is a three-year call option on an asset worth $522 million with a $995 million exercise price. 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 $895 million (vs. $995 million)? b. The present value of the Mark II in 1982 is $595 million (vs. $522 million)? c. The standard deviation of the Mark II's present value is only 28% (vs. 43% )? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Assumptions 1. The decision to invest in the Mark II must be made after three years, in 1985 . 2. The Mark II investment is double the scale of the Mark I (note the expected rapid growth of the industry). Investment required is $995 million (the exercise price), which is taken as fixed. 3 . Forecasted cash inflows of the Mark II are also double those of the Mark I, with present value of $902 million in 1985 and 902 (1)3=$522 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 43% per year. (Many high-technology stocks have standard deviations higher than 43%.) 5. The annual interest rate is 8%. Interpretation The opportunity to invest in the Mark II is a three-year call option on an asset worth $522 million with a $995 million exercise price. 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 $895 million (vs. $995 million)? b. The present value of the Mark II in 1982 is $595 million (vs. $522 million)? c. The standard deviation of the Mark II's present value is only 28% (vs. 43% )? Note: Do not round intermediate calculations. Round your answer to 2 decimal places