ABC Inc. is a budget airline that is evaluating whether to lease an aircraft from Boing Inc. If ABC does not lease the aircraft, its competitor will lease it today. If ABC Inc. does lease the aircraft, it will incur annual leasing cash outflows of $20 million for the next twelve years.
There is currently a pandemic and a potential vaccine has been developed for the deadly virus. If the vaccine is effective, future cash inflows net of other non-leasing cash outflows is expected to be $25 million per year. Otherwise, the net cash inflows will be $18 million per year. As of today, both scenarios seem equally likely.

Initial capital outlay associated with introducing a new route is $12 million and the discount rate is 10%.

(a) Calculate the NPV to determine whether ABC Inc. should lease the aircraft.

(b) Suppose the efficacy of the vaccine will be known in a year's time. At that time, Boing Inc. will give ABC Inc. the right to lease an additional aircraft, provided that it leases an aircraft today.  

What is the present value of the option to lease an additional aircraft? Willing to pay for this option?