Assumptions 1. The decision to invest in the Mark II must be made after three years, in 1985. 2. The Mark II has an investment requirement of $920 million, which is taken as f ixed. 3. Forecasted cash inflows of the Mark II have a present value in 1985 of $827 million and $479 million (827/1.23=479) in 1982 . 4. The future value of the Mark II cash flows is highly uncertain. This value evolves as a stock price does with a standard deviation of 398 per year. 5. The annual interest rate is 88 . How does the value of the option to invest in the Mark II in 1982 change if: How does the value of the option to invest in the Mark \| in 1982 change if: a. The investment required for the Mark II is $820 million (vs. $920 million)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. The present value of the Mark II in 1982 is $520 million (vs. $479 million)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. The standard devlation of the Mark II's present value is only 24% (vs. 39\%)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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