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Gasworks, Inc., has been approached to sell up to 4 million gallons of gasoline in three months at a price of $3.25 per gallon. Gasoline

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Gasworks, Inc., has been approached to sell up to 4 million gallons of gasoline in three months at a price of $3.25 per gallon. Gasoline is currently selling on the wholesale market at $3.00 per gallon and has a standard deviation of 56 percent. If the risk-free rate is 7 percent per year, what is the value of this option? Use the two-state model to value the real option. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of contract References eBook & Resources Worksheet Difficulty: 1 Basic Section: 23.3 More about the Binomial Model

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