Question $15$: ABC Enterprises is considering undertaking a special project requiring an

initial outlay of Rs $900,000.$ The project would have a two$-$year life, after which there will be

no expected salvage or terminal value. The possible incremental after$-$tax cash flows and

associated probabilities of occurrence are as follows:

The company's required rate of return for this investment is $8\%$

Calculate the expected net present value of this project.

$($a$)$ Suppose that the possibility of abandonment exists and that the abandonment value of the

project at the end of the first year is Rs $450,000$ after taxes. For this project, would

abandonment after one year ever be the right choice?

$($b$)$ Calculate the new expected net present value, assuming that the company would abandon

the project if it is worthwhile to do so$.$ Compare your calculations with those in Part $($a$).$

What is the implication to you as a manager?