The wind farm can produce 2025 MWhs (megawatt hours) over the remainder of its productive life. Specifically you can produce 25 MWh today and then another 2000 MWhs one year from today (we're following the end of year convention). Alternatively the wind farm can be shutdown at no cost today if you decide that is the best choice. The marginal cost of operating the wind farm is expected to be $40 per MWh if you produce today; that price will also hold if you continue to operate over the next year. You can sell the power generated today (the spot price) at $30 per MWh; further the forward price for power delivered one year from today is $32 per MWh. The risk-free rate is 5%.

Part b) Assume that you if you operate the wind farm today you have the option to shut it down or leave it open one year from today; you would be able to choose to produce power or not in one year. A one-year call option on a MWh of power with a strike of $40 can be purchased today for $5 per option contract. What is the value of the wind farm now? What should you do today? Shut down or continue to operate?