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What is the optimal abandonment strategy

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Reference no: EM132590966

The initial outlay is €200000. Project life is 4 years. Annual after-tax operating cash flows have a 65 percent probability of being €40000 for the four years and a 35 percent probability of being €85000. Salvage value at project termination is 0. The required rate of return is 10 percent. In 1 year, after realizing the first-year cash flow, the company has the option to abandon the project and receive the salvage value of €250000.

Question 1: If without the abandonment option, will you accept the project or not? What is the optimal abandonment strategy? Compute the project NPV using that strategy.

Reference no: EM132590966

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