User Account

All Pages

What is the value of the option to abandon

Assignment Help Accounting Basics
Reference no: EM132752765

Question - Cool Inc., manufactures filters for swimming pools. The company is deciding whether to implement a new technology in its pool filters. One year from now the company will know whether the new technology is accepted in the market. If the demand for the new filters is high, the present value of the cash flows in one year will be $14.3 million. Conversely, if the demand is low, the value of the cash flows in one year will be $8 million. The value of the project today under these assumptions is $12.9 million, and the risk-free rate is 6 percent. Suppose that in one year, if the demand for the new technology is low, the company can sell the technology for $9.4 million. What is the value of the option to abandon?

a. $418,240

b. $4,413,111

c. $131,237

d. $139,111

Reference no: EM132752765

Questions Cloud

Explain capital expenditures decline : Can the recommended offering price of $28 per share for Netscape's stock be justified? In valuing Netscape, make the following assumptions:
What amount that she should save at the end of each quarter : What amount that she should save at the end of each quarter to attain her goal, if she can earn interest at 11% per year, compounded quarterly
Current state of quality-internal dynamics : What are some of the variables that can affect your hospital internally and externally?
Draw the security market line with clear labels : Draw the Security Market Line (SML) with clear labels, and plot these two securities on the graph along with the market and risk-free rate
What is the value of the option to abandon : If the demand for the new technology is low, the company can sell the technology for $9.4 million. What is the value of the option to abandon
Calculate the debenture cost : Calculate the Debenture Cost? A merchant banker suggests that MRT Ltd would have to offer a rate of 13.4% p.a on any issue of 21 year debentures
Ethical dilemma associated with production : Briefly describe the company and its product and the ethical dilemma associated with the production and distribution of its products.
Compute the Taxable Net Income and Income Tax Due : A domestic corporation disclosed to us the following data for the year 2019: Compute the Taxable Net Income & Income Tax Due
Calculate the balloon payment at maturity : Calculate the balloon payment at maturity (Year 5) if the interest rate on this loan is 4.5%.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Theory of interest - term structure of interest rates

Term Structure of Interest Rates

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd