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Problem:

A project is worth $15 million today without an abandonment option. Suppose the value of the project is either $20 million one year from today (if product demand is high) or $10 million (if product demand is low). It is possible to sell off the project for $13 million if product demand is low.

Required:

Question: Calculate the value of the abandonment option if the discount rate is 5% per year

$1.64 million
$1.90 million
$1.21 million
$2.86 million

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91175101

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