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Now assume that one year from now OI will know if its produc…
Now assume that one year from now OI will know if its products will have become the industry standard. Also assume that after receiving the cash flows at t = 1, the company has the option to abandon the project. If it abandons the project it will receive an additional $100,000 at t = 1, but will no longer receive any cash flows after t = 1. Assume that the abandonment option does not affect the cost of capital. What is the estimated value of the abandonment option? (Assume: Active Management)
Now assume that one year from now OI will know if its produc…
Questions
Nоw аssume thаt оne yeаr frоm now OI will know if its products will have become the industry standard. Also assume that after receiving the cash flows at t = 1, the company has the option to abandon the project. If it abandons the project it will receive an additional $100,000 at t = 1, but will no longer receive any cash flows after t = 1. Assume that the abandonment option does not affect the cost of capital. What is the estimated value of the abandonment option? (Assume: Active Management)