A project requires $150 million investment. If you invest today, the present value of future cash flow is worth $180 mil

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A project requires $150 million investment. If you
invest today, the present value of future cash flow is worth $180
million. You can wait for one year to observe the demand of the
market; however, you forgo the cashflow in year 1. Assume if the
demand is high, there will be a cash flow of $22 million in year 1
and the present value of future cash flows at the end of year 1 is
$220 million; if the demand is low, there will be a cash flow of
$12 million in year 1 and the present value of future cash flows at
the end of year 1 is $120 million. You need to use risk-neutral
valuation method to decide either invest today and start to collect
the cash flow or delay it for one year. Annual risk-free rate is
3%. Show your work to get full credit. Keep four
decimals.
(a). What’s the risk-neutral probability of high
demand?
(b). What’s the value of the timing
option?
(c). Do you want to wait for one year or invest today?
Why?