Describe each of the following situations in the language of options. State in each case whether the situation involves a call or a put and the option's exercise price.
a. A company has drilling rights to undeveloped heavy crude oil in southern California. Development and production of the oil now is a negative-NPV endeavor. The break-even price is $120 per barrel, versus a spot price of $80. However, the decision to develop can be put off for up to 5 years.
b. A restaurant produces net cash flows, after all out-of-pocket expenses, of $700,000 per year. There is no upward or downward trend in the cash flows, but they fluctuate. The real estate occupied by the restaurant is owned, and it could be sold for $5 million.