Disney is considering starting a Spanish version of the Disney Channel in Mexico and estimates the Net Present Value (NPV) of this investment to be -$150 million. While the negative net present value would normally suggest that rejecting the investment is the best course, assume that if the Mexican venture does better than expected, Disney plans to expand the network to the rest of South America at a cost of $ 500 million. Based on its current assessment of this market, Disney believes that the present value of the expected cash flows on this investment is only $ 400 million (making it a negative net present value investment as well). The saving grace is that the latter present value is an estimate and Disney does not have a firm grasp of the market; a Monte Carlo simulation of the investments yields a standard deviation of 50% in value. Finally, assume that Disney will have to make this expansion decision within 5 years of the Mexican investment, and that the five-year risk-free rate is 4%. Required: Using the Black-Scholes model, compute the value of the expansion option and advise on the suitability of the option to expand.