A Project Is Worth $15 Million Today Without an Abandonment

question 29

Multiple Choice

A project is worth $15 million today without an abandonment option.Suppose the value of the project is either $20 million one year from today (if product demand is high) or $10 million (if product demand is low) .It is possible to sell off the project for $13 million if product demand is low.Calculate the value of the abandonment option if the discount rate is 5% per year.

• A)$1.21 million
• B)$2.86 million
• C)$1.90 million
• D)$1.64 million

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Definitions:

Selective Listening

The process where an individual consciously or subconsciously chooses to pay attention only to certain messages or parts of a conversation while ignoring others.

Cognitive Dissonance

The psychological discomfort experienced when holding two or more conflicting cognitions (ideas, beliefs, values, emotional reactions).

Horizontal Messages

Communication that occurs between colleagues or departments at the same level within an organization, facilitating coordination and collaboration.

Chain of Command

Describes a system of authority in an organization where orders are passed from senior-level to junior-level individuals.