Question 8. (8 points) Widgets, Inc. has the option to invest in a new product line, code name: Super Fancy Widgets. The investment costs $325 million if the firm invests today (January 1, 2022) but the cost rises to $340 million if the firm invests in 2023. The firm cannot invest after 2023 . The present value of the product line (i.e., ignoring the cost) is currently $400 million but the value increases or decreases 25% each year (equal probability): So, for example, the firm can wait until 2023, and then pay $340 million to receive $500 million if the value increases. Assume that the product line will not generate any cash flows for the next three years, that storage costs are zero and that the riskless interest rate is 5% (annualized and continuously compounded). (a) What is the value of the option to invest in Super Fancy Widgets? Question 8. (8 points) Widgets, Inc. has the option to invest in a new product line, code name: Super Fancy Widgets. The investment costs $325 million if the firm invests today (January 1, 2022) but the cost rises to $340 million if the firm invests in 2023. The firm cannot invest after 2023 . The present value of the product line (i.e., ignoring the cost) is currently $400 million but the value increases or decreases 25% each year (equal probability): So, for example, the firm can wait until 2023, and then pay $340 million to receive $500 million if the value increases. Assume that the product line will not generate any cash flows for the next three years, that storage costs are zero and that the riskless interest rate is 5% (annualized and continuously compounded). (a) What is the value of the option to invest in Super Fancy Widgets