Suppose that a project costs 1 million for each of the

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Suppose that a project costs $1 million for each of the first five years. At the end of the fifth year, the firm can either abandon the project or continue to operate it. If the project is continued, the expected payoff is $6 million as of the end of the end of the fifth year applying the Black-Scholes option pricing model. For the value of this option to abandon or continue is $3 million. What is the strategic net present value of this project if the cost of capital is 5%?

Reference no: EM13379430

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