Problem 3 SET Petroleum Inc. owns a lease to extract oil from an oil eld in Texas. An initial construction cost of $50 million is required and this cost is constant no matter when the construction starts. Suppose the crude oil price is uncertain and can be $50! barrel or $30! barrel with equal probability next year. Further assume that once the price is conrmed at t=1, it will remain constant forever in future. The extraction costs are $25!\" barrel constantly. The quantity of crude oil Q = 300,000 barrels per year forever. The risk-free interest rate is 6% per year and that is also the cost of capital (ignore taxes}. Assume revenue is earned and costs are paid at the end of each year. Using real option analysis, determine whether it's optimal for the rm to invest noun.r or in one year. (10 marks}