A Project Is Worth $12 Million Today Without an Abandonment

question 43

Short Answer

A project is worth $12 million today without an abandonment option. Suppose the value of the project is $18 million one year from today with high demand and $8 million with low demand. It is possible to sell off the project for $10 million if the demand is low. Calculate the value of the abandonment option if the discount rate is 5% per year. [Use the risk-neutral valuation]
A. $1.03 million.
B. $2 million.
C. $1.9 million.
D. None of the above.

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Definitions:

Embarrassed

The feeling of discomfort or self-consciousness caused by a perceived awkward or humiliating situation.

Arrested

The act of detaining a person by legal authority on suspicion of their involvement in a criminal activity.

Child Maltreatment

Abuse or neglect of a child by a parent, guardian, or other caretaker, resulting in potential harm or injury.

Physical Abuse

Involves the infliction of bodily harm upon another person through forceful means, often in contexts of power imbalance.