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1. (20%) Answer the following questions based on the table below. Use the 'Table of the Standard Normal Cumulative Distribution Function' at the last page to answer question (b). Homer Simpson plans to open a restaurant and makes the following forecast. a) (5\%) Discount rate is 20%. Building cost at Year 0 is 800,000 . What is the net present value of the project? Should Homer undertake the business or not? b) (15%) Now, he thinks of another possibility. Instead of just opening a restaurant, he considers an option to expand. If his first restaurant (a pilot restaurant) turns out to be successful at the end of year 4 , he will open 30 more restaurants at the end of year 4 . Each of these restaurants will create cashflow from 5th year (from now) to all future years forever. Cashflow estimate of these restaurants are exactly the same as described in the table above. Homer Simpson estimates the standard deviation of the 30 restaurants' aggregate cashflow total to be 0.50 . Risk free interest rate is 3.5%(0.035). This implies that the present value of opening 30 restaurants at the end of year 4 equals 1.035424,000,000. If he considers this option to expand, should he undertake his first restaurant or not? (Assume that if he does not start his pilot restaurant, he cannot have an option to expand at the end of year 4). Use the Black Sholes Model of the lecture note 7 and the table 1 at the end of this problem set