Q$4$: $(6$ Marks$)$ A project whose initial cost $=$$$75$ million, Cost of Capital $=10\%,$ risk$-$free rate

$=6\%,$ and cash flows for $3$ years. The probability distribution of its cash flows for each year is

as follows:

a$)$ What is the $E(NPV)$ if the project is implemented now?

$0,350+0,435+0,320=35m,3)87\mathrm{.}04-75=12,$

b$)$ What is the E$($NPV$)$ if the firm waited for one year?

$-\frac{75}{1,05}+\frac{3b}{1,1^2}+\frac{3b}{1,1^3}+\frac{35}{1,1^4}=8\mathrm{.}4m$

c$)$ What is the real option value of this project if you, according to your personal judgement, believe

that the variance of its return is around $0\mathrm{.}16?$

$\frac{(\frac{35}{1,1}+\frac{35}{1,1^2}+\frac{35}{1,1^3})}{1,1}=79,12$