A Project Is Worth $15 Million Today Without an Abandonment

question 1

Short Answer

A project is worth $15 million today without an abandonment option. Suppose the value of the project is $20 million one year from today with high demand and $10 million with low demand. It is possible to sell off the project for $13 million if the demand is low. Calculate the value of the abandonment option if the discount rate is 5% per year. [Use the replicating portfolio method]
A. $1.21 million.
B. $2.86 million.
C. $1.9 million.
D. None of the above.

---

Definitions:

Stratified Cuboidal Epithelium

A type of epithelial tissue consisting of layers of cuboidal cells, found in some ducts of glands, providing protection and involved in secretion.

Sweat Glands

Specialized glands found in the skin that produce sweat as part of the body's mechanism for temperature regulation and excretion.

Simple Cuboidal Epithelia

A type of single-layered epithelial tissue that has cube-shaped cells, commonly found lining glands and ducts.

Cube-Shaped Cells

Epithelial cells that have approximately equal height, width, and depth, resembling the shape of a cube, often found in glandular tissues.