Calculate the value of abandonment option if discount rate

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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

$1.64 million

$1.90 million

$1.21 million

$2.86 million

Reference no: EM13766805

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