3. A hydropower generation plant will cost 3,000 million. The project will have a life of 25...
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3. A hydropower generation plant will cost 3,000 million. The project will have a life of 25 years. The present value of the project's cash flows is expected to be 22,700 million. Since the project has a negative. NPV, the firm is reluctant to build the plant. As an incentive to the company, the government agrees that the company will have the option to sell the plant to the government at 2,500 million at the end of ten years. What is the value of this abandonment option to the company?
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