What is the value of the abandonment option

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Reference no: EM131904283

4. A local firm is considering a project with the following cash flows: Predicted Cash Flows 0 1 2 3 Best Case(p=.25) -25,000 18,000 18,000 18,000 Base Case(p=.50) -25,000 12,000 12,000 12,000 Worst Case(p=.25) -25,000 -8000 -8000 -8000 a. Using the cash flows on the table above, find the project’s expected NPV, assuming the required return is 12%. b. Assume that the company can sell the project for $15,000 at the end of year 2. Assume that the required return is still 12%. What is the new value of the project? c. What is the value of the abandonment option?

Reference no: EM131904283

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