7. Consider a project with a value of $5,000 and initial investment of $5,500. Suppose, the value of the project may be revised 1 year from now either up to $7,500 or down to $3,000. At that time, the project can be abandoned with a terminal cash flow of $4,500. The risk-free rate is 5%. Find the value of the option to abandon.

Answer: $714

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