Value of the abandonment option

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A project is worth $18 million today without an abandonment option. Suppose the value of the project is $22 million one year from today with high demand and $14 million with low demand. It is possible to sell off the project for $16 million if the demand is low. Using risk neutral probabilities, which of the following is closest to the value of the abandonment option if the risk free rate is 4% per year.

Reference no: EM132383969

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