Kim Hotels is interested in developing a new hotel in Seoul. The company estimates that the hotel would require an initial investmen of $20 million. Kim expects the hotel will produce positive cash flows of $3 million a year at the end of each of the next 20 years. The project's cost of capital is 13%. Kim expects the cash flows to be $3 million a year, but it recognizes that the cash flows could actually be much higher or lower, depending on whether the Korean government imposes a large hotel tax. One year from now, Kim will know whether the tax will be imposed. There is a 50% chance that the tax will be imposed, in which case the yearly cash flows will be only $2.2 million. At the deciding whether to proceed with the hotel today or to wait a year to find out whether the tax will be imposed. If Kim waits a year, the initial investment will remain at $20 million. Assume that all cash flows are discounted at 13%. Use the Black-Scholes model to estimate the value of the option. Assume that the variance of the project's rate of return is 0.0687 and that the risk-free rate is 7%. Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places. Use computer software packages, such as Minitab or Excel, to solve this problem. The Karns Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates the project would cost $4 million today. Karns estimates that, once drilled, the oil will generate positive net cash flows of $2 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 geology and about the price of oil. Karns estimates that if it waits 2 years then the project would cost $5 million. Moreover, if it waits 2 years, then there is a 90% chance that the net cash flows would be $2.1 million a year for 4 years and a 10% chance that they would be $1.1 million a year for 4 years. Assume all cash flows are discounted at 9%. a. If the company chooses to drill today, what is the project's net present value? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places. b. Using decision-tree analysis, does it make sense to wait 2 years before deciding whether to drill? The Karns Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates the project would cost $8 million today. Karns estimates that, once drilled, the oil 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 geology and about the price of oil. Karns estimates that if it waits 2 years then the project for 4 years and a 10% chance that the waits 2 years, then there is a 90% chance that the net cash flows would be $4.2 million a year the.Black-Scholes model to estimate the value of $2.2 million a year for 4 years. Assume all cash flows are discounted at 10%. Use the.Black-Scholes risk-free rate is 8%. Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1,234 , not 1,234,000. Round your answer to three decimal places