Project requires $80 million investment, regardless of the time of investment. If you invest today, the present value of future cash flows is worth $100 million. You can wait for one year to observe the demand of the market; however, you forgo the cash flow in the first year. Assume if the demand is high, there will be a cash flow of $12 million in year 1 and the value of the project at the end of first year (not including cash flow paid in first year) will be worth $120 million; if the demand is low, there will be a cash flow of 6.9 million in year 1 and the value of the project at the end of first year (not including cash flow paid in first year) will be $69 million. You need to use risk-neutral valuation method to decide either invest today and start to collect the cash flow or delay it for one year. Annual risk free rate is 3%. Keep four decimals if applicable. Only enter the final answers in the blanks.

(a). The option to wait and see is a call option or a put option?

(b). In the risk-neutral valuation approach, what’s the return when there is high demand? (keep four decimals; in %) %. what’s the return when there is low demand? (keep four decimals; in %) % what’s probability of high demand? (keep four decimals)

(c). In case of high demand, what’s the payoff of the option in year 1 (in millions)? $ million

In case of low demand, what’s the payoff of the option in year 1(in millions)? $ million

(d). What’s the net value of the project if you invest today (in millions)? $ million

What’s the value of the option to wait for one year to decide (in millions)? (keep four decimals) $ million

(e). Will you invest today or wait for one year?