Brandt Enterprises Is Considering a New Project That Has a Cost

question 43

Multiple Choice

Brandt Enterprises is considering a new project that has a cost of $1,000,000, and the CFO set up the following simple decision tree to show its three most likely scenarios.The firm could arrange with its work force and suppliers to cease operations at the end of Year 1 should it choose to do so, but to obtain this abandonment option, it would have to make a payment to those parties.How much is the option to abandon worth to the firm?

• A) $55.08
• B) $57.98
• C) $61.03
• D) $64.08
• E) $67.29

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Definitions:

Contract with Robert

An agreement made with an individual named Robert, specifying obligations and rights concerning a particular matter or transaction.

Enforcement of Promise

The act of ensuring that a promise, especially one formalized in a contract, is fulfilled according to its terms.

Alaska Supreme Court

The highest court in the state of Alaska, responsible for reviewing decisions made by lower state courts.

Promissory Estoppel

A legal principle that prevents a promisor from arguing that an underlying promise should not be legally upheld or enforced, due to the promisee's reliance on that promise.