Carlson Inc

question 14

Multiple Choice

Carlson Inc.is evaluating a project in India that would require a $6.2 million investment today (t = 0) .The after-tax cash flows would depend on whether India imposes a new property tax.There is a 50-50 chance that the tax will pass,in which case the project will produce after-tax cash flows of $1,350,000 at the end of each of the next 5 years.If the tax doesn't pass,the after-tax cash flows will be $2,000,000 for 5 years.The project has a WACC of 12.0%.The firm would have the option to abandon the project 1 year from now,and if it is abandoned,the firm would receive the expected $1.35 million cash flow at t = 1 and would also sell the property for $4.75 million at t = 1.If the project is abandoned,the company would receive no further cash inflows from it.What is the value (in thousands) of this abandonment option?

• A)$104
• B)$115
• C)$128
• D)$141
• E)$155

---

Definitions:

Neurocognitive Disorder

A general term that refers to any condition affecting cognitive abilities, including memory, problem-solving, attention, and language, often due to neurological illness or injury.

Neurofibrillary Tangles

Abnormal accumulations of a protein called tau in the brain, associated with various neurodegenerative diseases including Alzheimer's disease.

Alzheimer's Patients

Individuals diagnosed with Alzheimer's disease, a progressive neurodegenerative disorder that affects memory, cognitive abilities, and behavior.

Emotional Disturbances

A broad category of mental health issues characterized by inappropriate behaviors, feelings, or thoughts, affecting an individual's ability to function effectively.