Assume today is July 1, 2023. A company has set a date to decide about the expansion or abandonment of a project at 6/30/2024. The Net Salvage Value at that date, if the company abandons the project, is $740,000. The PV for the cash flows after that date, if the project is a failure, is $695,762; the PV for the cash flows after that date, if the project is a success, is $1,640,000. The project has a required return of 13%, a 7/1/23 launch cost of $1,200,000, and a 50/50 chance of success/failure. What is the value of the Option to Abandon? (round to the nearest dollar)

 

Answer rating: 100% (QA)

Solution The value of the Option to Abandon can be calculated using the Binomial Model which is a wi... View the full answer