Acme Co$.$ is considering a four$-$year project that will require an initial investment of $$7,000.$ The base$-$case cash flows for this project are projected 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$ per

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 also

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$-$case

cash flows.

What would be the expected net present value $($NPV$)$ of this project if the project's cost of capital is $12\%?$

$$30,782$

$$26,935$

$$21,804$

$$25,652$

Acme 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 $$4,500($at the end of year

$.$ The $$4,500$ 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.

Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account.

$$35,211$

$$31,148$

$$25,731$

$$27,085$

What is the value of the option to abandon the project?