Your firm will issue a perpetual American call option with an exercise price of $300. The volatility of the underlying is estimated to be 60%, and the option pays a continuous dividend yield of 5%. The instantaneous return on risk free securities is 2%. Please answer the following questions:

a. At what value of the underlying, S*, would you exercise this option?

b. What is the value of the option if the underlying asset is valued at $500. Would you exercise the option at this time? Why, or why not?

c. What is the value of the option multiple in this case? What underlying factor is most responsible for its magnitude in this project?