Question $2$:

You are estimating the cashflows for a project. You find that if implemented today, the project will cost $$100$ million and will generate positive cash flows over the next five years. If the economic situation improves $(30\%$ probability$),$ the project will annually generate $$30$ million. If the economic situation remains the same $(50\%$ probability$),$ the project will annually generate $$25$ million. If the economic situation deteriorates $(20\%$ probability$),$ the project will annually generate $$20$ million cash flow in each of the following five years. The cost of capital for the project is $7\mathrm{.}5\%,$ and the risk$-$free rate is $1\mathrm{.}5\%.$

Now you have a real option to wait for one year and then implement the project. If the project is implemented next year, the project cost does not change, and you will know the economic situation with certainty. As a result, you will not implement the project if the NPV is negative. Assuming that nothing else changes even if you wait for a year, find out the value of this real option of implementing the project after waiting for a year. Do you exercise the real option?