You are attempting to value a call option with an exercise price of $130 and one year to expiration. the underlying stock pays no dividends, its current price is $130, and you believe it has a 50% chance of increasing to $155 and a 50% chance of decreasing to $105. the risk-free rate of interest is 8%. based upon your assumptions, calculate your estimate of the the call option's value using the two-state stock price model.

You are the manager of a large crude-oil refinery. as part of the refining process, a certain heat exchanger (operated at high temperatures and with abrasive material flowing through it) must be replaced every year. the replacement and downtime cost in the first year is $165 comma 000. this cost is expected to increase due to inflation at a rate of 7% per year for six years (i.e. until the eoy 7), at which time this particular heat exchanger will no longer be needed. if the company's cost of capital is 15% per year, how much could you afford to spend for a higher quality heat exchanger so that these annual replacement and downtime costs could be eliminated?