abandonment options

Albert Co. is considering a four-year project that will require an initial investment of $15,000. The base-case cash flows for this project are projectec to be $12,000 per year. The best-case cash flows are projected to be $20,000 per year, and the worst-case cash flows are projected to be - $1,000 p year. The company's analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts al think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-ca cash flows. What would be the expected net present value (NPV) of this project if the project's cost of capital is 10% ? $19,076$22,891$15,261$16,215 Albert now wants to take into account its ability to abandon the project at the end of year 2 if the project ends up generating the worst-case scenario cash flows. If it decides to abandon the project at the end of year 2, the company will receive a one-time net cash inflow of $4,750 (at the end of year 2). The $4,750 the company receives at the end of year 2 is the difference between the cash the company receives from selling off the project's assets and the company's $1,000 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flows in years 3 and 4 of the project. Albert now wants to take into account its ability to abandon the project at the end of year 2 if the project ends up generating the worst-case scenario cash flows. If it decides to abandon the project at the end of year 2 , the company will receive a one-time net cash inflow of $4,750 (at the end of yea 2). The $4,750 the company receives at the end of year 2 is the difference between the cash the company receives from selling off the project's asset and the company's $1,000 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flows in years 3 and 4 of the project. Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account. What is the value of the option to abandon the project