Problem 3 (Real option of flexibility of waiting to invest with variable output prices) Your firm invests oil. Once you invest in a project your revenue stream will be locked in perpetuity and start at the date of investment. If you invest immediately, then given current oil prices, it will cost $1.6 billion and you will generate free cash flows of $200 million in perpetuity starting immediately. If instead you wait a year to invest $1.6 billion, then given your production capacity, and future oil prices, can generate free cash flows of either $300 million or $50 million in perpetuity, with equal probability. The project's discount rate is 10%. A. Should you wait? B. What is the value of the option to wait?