Problem 6 Your firm has a 2-year option to develop and license a patent. The cost to do so is $1 billion when exercised. If developed, the value of the patent will depend on its licensing revenues which are expected to grow at 2% annually in perpetuity. If the product is launched this year then the first year's revenue will be $100 million (at the end of the first year as cash flows are recorded at year-end). The discount rate for the project is 10%. If you wait a year then the starting licensing revenues could be either 1.5x higher than the prior year, or 2/3 lower than the prior year with probability of 50% and 50%, respectively (which I refer to as "upside" and "downside probabilities, respectively). NOTE: For this Part A and Part B, draw the lattice and calculate the value of the immediate development, intrinsic value and the option continuation value at each node. i. Should you develop and license the patent immediately or postpone? ii. If you think postponing is the best choice, how long should you postpone? iii. What is the net value, (i.e. the value net of any investment costs now or future) of your decision? B. How would your answer to Part A change if the upside and downside" probabilities were 30% and 70%, respectively. i. Should you develop and license the patent immediately or postpone? ii. If you think postponing is the best choice, how long should you postpone? iii. What is the net value of your decision?