Fully committing to a project is worth $12 million today. Suppose the terminal value of the project will be either $18 million one year from today (if product demand is high) or $8 million (if product demand is low). Adding flexibility to the project makes it possible to sell off the project for $10 million if product demand is low in one year. Calculate the value of the flexibility coming from the abandonment option if the risk-free rate is 5 percent per year.

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