What is the value of this abandonment option today

Reference no: EM133377374

Question: You are considering a project that will cost you $1,000,000 initially. Your cost of capital for this project is 8%. There is a 75% probability that the project will generate cash flows of $100,000 per year in perpetuity, and a 25% probability that the project will generate cash flows of $50,000 per year in perpetuity. If you could sell the project at the end of the first year for $795,712, what is the value of this abandonment option today? Round your answer to the nearest penny.

Reference no: EM133377374

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