Question: We will assume that Technology A has a salvage value of $7 million, rather than zero. The present value of the project with Technology A

We will assume that Technology A has a salvage value of $7 million, rather than zero. The present value of the project with Technology A is $15 million at year 0, assuming no abandonment. The risk-free rate is 7 percent.

Suppose abandonment can only occur at year 1. In what circumstances would you abandon then? What is abandonment value at year 0?

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