Use the information below to answer the following three parts:

Your management team has put together the following projections for a project in which your company is interested implementing.

Demand	Probability	Annual Cash Flow
High	25%	$40 million
Average	50%	$30 million
Low	25%	$10 million
Project's cost of capital		9%
Life of project		3 years
Required investment		$50 million
Risk-free rate		2%

a) What is the expected net present value (NPV) of the project, ignoring any real option, using discounted cash flows (DCF)?

$79.00 million

$27.50 million

$19.61 million

$30.43 million

None of the above

b) What is the expected net present value (NPV) for the proposed project, considering an investment timing option to wait one year before implementation, according to the decision-tree procedure?

$16.51 million

$23.65 million

$21.70 million

$10.78 million

None of the above

c) Use the Black-Scholes model to estimate the call premium associated with the investment timing option to wait one year before implementing the proposed project. The real option has a strike price of $50, a variance of 20%, and a spot price of $40.

$4.19 million

$4.04 million

$23.65 million

$19.61 million

None of the above