Your firm is considering a project with the following cash flows ...
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Finance
Your firm is considering a project with the following cash flows
Cash outflow
1
2
3
Best case
25%
25000
18000
18000
18000
Base case
50%
25000
12000
12000
12000
Worst case
25%
25000
-8000
-8000
-8000
You learned that the firm can abandon the project if it if it does so after one year of operations in which case it can sell the asset and receive $15,000 in cash at the end of year 2. assume that all cash flows are after tax amount the WACC is 12%
what is the projects NPV without the abandonment option?
What is the expected NPV with the abandonment option?
what is the value of the abandonment option?
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