a) Suppose that Stone Enterprises is trying to develop a new project but is uncertain about what the market for that product will be one year from now. The new product will require stone to invest $25 million. If the investment is made immediately Stone expects the NPV to be $30 million. Stone expects to earn an additional $3 million in free-cash-flow this year if the project is undertaken immediately. How much is the option to wait for one year worth? Assume that the project's cost of capital is 30%, that similar projects have annual standard deviations of 30%, and that the risk-free rate is 5%. Answer in millions round to two decimals. For this question, this answer is NOT 1.96.

b) Suppose that you have acquired the exclusive rights to open a Chick-Fil-A on the UNR campus. Setup costs are $500 thousand and the monthly expenses are $12 thousand. If demand for Chick-Fil-A is strong monthly revenues will be $20 thousand, however if demand is weak monthly revenues will be $10 thousand. You will be able to determine the demand immediately after you open. Assuming that the project's cost of capital is 5%, that the beta of the project is zero, that the risk neutral probability of strong demand is 0.50, and that as part of your contract you have the option close the Chick-Fil-A two years from now. What is the value of this option to close in two years? Submit your answer in thousands. For this question, the answer is NOT 217.21.