Question 3 Consider the information in Table 4 about an investment opportunity that can be deferred for one year: Table 4 Expected cash flow (CF) year 1 105 million 9- perpetuity growth rate of CF 1.8% k-cost of capital 10% K-investment cost 1,380 million - standard deviation of CF 15% r-risk-free rate 1.0% o-opportunity cost 6% To answer the following questions, make plausible assumptions if necessary. In case you prefer, standard characters can be used (e.g. s rather than o, capital_sigma rather than ). a. What is the value of this investment opportunity using the Black-Scholes (B-S) formula for a European call option? Explain your answer. For your computations, use as inputs for the cumulative probability from the normal distribution N(dt) = 0.2244 and N(dz) = 0.1821. Present your result rounded to one decimal place. [12.5 marks] b. Consider the following statement with respect to the investment opportunity under analysis: "The option value associated with the investment opportunity is positive. Therefore the investment opportunity should be accepted". Do you agree with this statement? Explain your answer. [12.5 marks] Question 3 Consider the information in Table 4 about an investment opportunity that can be deferred for one year: Table 4 Expected cash flow (CF) year 1 105 million 9- perpetuity growth rate of CF 1.8% k-cost of capital 10% K-investment cost 1,380 million - standard deviation of CF 15% r-risk-free rate 1.0% o-opportunity cost 6% To answer the following questions, make plausible assumptions if necessary. In case you prefer, standard characters can be used (e.g. s rather than o, capital_sigma rather than ). a. What is the value of this investment opportunity using the Black-Scholes (B-S) formula for a European call option? Explain your answer. For your computations, use as inputs for the cumulative probability from the normal distribution N(dt) = 0.2244 and N(dz) = 0.1821. Present your result rounded to one decimal place. [12.5 marks] b. Consider the following statement with respect to the investment opportunity under analysis: "The option value associated with the investment opportunity is positive. Therefore the investment opportunity should be accepted". Do you agree with this statement? Explain your answer. [12.5 marks]