Your second job at your new employer, the Soprano VC Fund, is to value the following company with

these cash flow projections. You need to use the NPV and the Option Pricing methods. $[10$ marks$]$

WACC$=25\%,$ terminal growth rate $=3\%.$ Initial investment: $$30$ million for R&D equipment

and personnel. The $$100$ million expenditure on the plant could be undertaken any time in the

first two years $($whenever the project would be undertaken, the present value of the plant

construction expenditures would total $$100$ million in today's dollars$).$ You pursue the $$100$

million expenditure only if the first stage investment is successful. The Valuation decision now

based on a $$30$ million investment bundled with a two$-$year European call option and priced

using the Black$-$Scholes model. Time to expiration $(t)=2$ years. Risk$-$free rate $(rf)=7\%.$

Exercise price $(x)=$ present value of the investment to build the plant $=$$$100$ million. Stock

Price $(S)=$ discounted cash flows generated by the underlying assets associated with the

expansion opportunity can be computer for Year $0$ using a discount rate of $20\%$ and a terminal

growth rate of $3\%$ per year. The standard deviation $()$ based on comparables is $0\mathrm{.}6.$