find the calue of tge option using the black scholes model

Investment Timing Option: Option Analysis The Karns Oil Company is deciding whether to drill for oll on a tract of land that the company owns. The company estimates the project would cost $8 milian today. Karns estimates that, once drilled, the oll will generate positive net cash flows of $4 million a year at the end of each of the next 4 years. Although the company is fairly confident about its cash flow forecast, in 2 years it will have more information about the local geolofy and about the price of oil. Karns estimates that if it waits 2 years then the project would cost $9 million. Moreover, if it waits 2 years, then there is a 90% chance that the net cash flows aould be $4.2 million a year for 4 years and a 10% chance that they would be $2.2 million a year for 4 years. Assume all cash fows are discounted at 10%. Use the Btack-Scholes model to estimate the value of the option. Assume the variance of the project's rate of retum is 0.111 and that the risk-free rate is 5%. Do not round intermediate calculations. Enter your answer in miliionst for example, an answer of $1.234milli on 5 hould be entered as 1.234, not 1,234,000. Round your answer to three decimal places. million