Problem 26-02 Investment Timing Option: Decision-Tree Analysis 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 $12 million today. Karns estimates that, once drilled, the oil will generate positive net cash flows of $5.4 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 would cost $13.5 million. Moreover, if it waits 2 years, then there is a 90% chance that the net cash flows would be $6.24 million a year for 4 years and a 10% chance that they would be $3.48 million a year for 4 years. Assume all cash flows are discounted at 10%. a. If the company chooses to drill today, what is the project's net present value? negative value should be entered with a negative sign. Enter your answer millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places. $ million b. Using decision-tree analysis, does make sense to wait 2 years before deciding whether to drill? -Select- Check My Work (3 remaining)