A company is considering investing in a project with an option to abandon it in the future

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A company is considering investing in a project with an option to abandon it in the future if the market condition turns unfavorable. The company estimates the following scenarios. Calculate the value of the option.

Favorable market condition: NPV=$12,758

Unfavorable market condition with option to abandon early: NPV=-$12,260

Unfavorable market condition without option to abandon early: NPV=-$65,250

Probability of favorable market condition: 75%

Probability of unfavorable market condition: 25%

Question 2 -Value of the option Favorable Market Condition Unfavorable Market Condition w/ option to abandon early Unfavorabl

Posted Date: Sep 23, 2021 08:28 PM

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A company is considering investing in a project with an option to abandon it in the future

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