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

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Definitions:

Omit Others

To leave out or exclude additional individuals or items from consideration or action.

Exerting

Applying effort, influence, or pressure to achieve a particular outcome.

Represented

Being acted on or spoken for by another, especially in a legal or professional context.

Policy-Making

is the process by which governments, organizations, or other groups develop and implement rules, laws, or guidelines to govern or guide behavior.