Investment Timing Option: Option Analysis The Karns Qil compary is deciding whether to drill for ail on a tract of land that the compary owris, The company estimates the project would cost $8 million today, Kaine estimates that, once drilled, the oil will generate positive net cash flows of $4 million a year at the end of each of the neat 4 years. Athough the company is faiely confidenf about its cash flow forecast, in 2 years it will have more information about the local gealogy and about the price of oul. Karns estumates that if in waits 2 years then the preject would cost 59 million. Moreovec, if it waits 2 years, then there is a 90% chance that the net cash flows would be 54.2 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 flows are discounted at 10\%. Use the Black-Scholes model to estimote the value of the opeion, Asume the vanance of the project 's rate of return is 0.754 and that the risk. free rate is 5%. Do not round mtermedtate calculations. Lnter your answer in mithions. for ecample, an antwer of $1.234 mallion should be entered as 1.234, not 1,234,000, Round your answer to three decmal places