Rework Problem 24-2 using the Black-Scholes model to estimate the value of the option: The risk-free rate is 6%.

Data from Problem 24-2:

Karns Oil Company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates that the project would cost $8 million today. Karns estimates that once drilled, the oil will generate positive net cash flows of $4 million a year at the end of each of the next 5 years. While the company is fairly confident about its cash flow forecast, it recognizes that if it waits 3 years, it would have more information about the local geology as well as the price of oil. Karns estimates that if it waits 3 years, the project will cost $12 million. Moreover, if it waits 3 years, there is a 90% chance that the net cash flows will be $4.2 million a year for 5 years, and there is a 10% chance that the cash flows will be $2.2 million a year for 5 years. Assume that all cash flows are discounted at 10%.