Question: Consider the project whose cash flows are given below: a. Using the state prices, value the project. b. Suppose that at date 2 the project

Consider the project whose cash flows are given below:

A 1 Project cash flows D E G State prices qu 3

a. Using the state prices, value the project.

b. Suppose that at date 2 the project can be abandoned at no cost. What does this do to its value?

c. Suppose that at any time the project can be sold for 100. Show the tree of cash flows and value the project.

A 1 Project cash flows D E G State prices qu 3 169 4 130 0.3000 91 0.5000 -100 7 91 8. 70 -90

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