Problem 2 Williams Inc is considering an R&D project. The terms are as follows. The cost of R&D is 20m The R&D effort will take 2 years. After 2 years, if the technology works, the expected present value of after tax revenues is expected to be 200m. The volatility of these returns is 50%. The discount rate for this project is 12% continuously compounded per year. The riskless rate is 5% The cost to develop, if the first phase is successful is $170m The likelihood of the R&D project being successful is 40%, (a)Use the Black Scholes formula to compute the value of R&D assuming away technical risk. (c) Now compute the value of R&D taking technology risk into consideration. (d) Should Williams do this project? (e) For what range of technology risk, is the project viable. Problem 2 Williams Inc is considering an R&D project. The terms are as follows. The cost of R&D is 20m The R&D effort will take 2 years. After 2 years, if the technology works, the expected present value of after tax revenues is expected to be 200m. The volatility of these returns is 50%. The discount rate for this project is 12% continuously compounded per year. The riskless rate is 5% The cost to develop, if the first phase is successful is $170m The likelihood of the R&D project being successful is 40%, (a)Use the Black Scholes formula to compute the value of R&D assuming away technical risk. (c) Now compute the value of R&D taking technology risk into consideration. (d) Should Williams do this project? (e) For what range of technology risk, is the project viable