PREDICTED CASH FLOW FOR EACH YEAR ($25,000) (25,000) (25,000) $18,000 12,000 (8,000) Best Case 25% $18,000 12,000 (8,000) $18,000 12,000 (8,000) Base Case 50% Worst Case 25%
PREDICTED CASH FLOW FOR EACH YEAR ($25,000) (25,000) (25,000) $18,000 12,000 (8,000) Best Case 25% $18,000 12,000 (8,000) $18,000 12,000 (8,000) Base Case 50% Worst Case 25%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Your firm is considering a project with the following cash flows:
You learn that the firm can abandon the project, if it so chooses, after 1 year of operation,
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 amounts. The WACC is 12%.
a. What is the project’s expected
b. What is the expected NPV with the abandonment option?
c. What is the value of the abandonment option?
Transcribed Image Text:PREDICTED CASH FLOW FOR EACH YEAR
($25,000)
(25,000)
(25,000)
$18,000
12,000
(8,000)
Best Case
25%
$18,000
12,000
(8,000)
$18,000
12,000
(8,000)
Base Case
50%
Worst Case
25%
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