A Project Is Worth $12 Million Today Without an Abandonment

question 2

Multiple Choice

A project is worth $12 million today without an abandonment option if the interest rate is 5 percent per year. Suppose the value of the project is either $18 million one year from today (if product demand is high) or $8 million (if product demand is low) . It is possible to sell off the project for $10 million if product demand is low. Calculate the value of the abandonment option if the discount rate is 5 percent per year.

• A)$1.03 million
• B)$0.88 million
• C)$1.90 million
• D)$5.14 million

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Definitions:

Norms

Socially accepted rules that dictate the expected behavior in specific situations, guiding individual actions within a group.

Manipulated

Altered or controlled in a skillful or sometimes deceitful manner to achieve a desired outcome.

Behavior

The actions or reactions of an organism, often in relation to its environment, which can be observed and measured.

Littering

The improper disposal of waste products in an inappropriate place, typically in public areas.