A Project Is Worth $12 Million Today Without an Abandonment

question 31

Multiple Choice

A project is worth $12 million today without an abandonment option.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% per year.

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