Abandonment options

8. Abandonment options Aa Aa Galbraith Co. is considering a four-year project that will require an initial investment of $7,000. The base-case cash flows for this project are projected to be $14,000 per year. The best-case cash flows are projected to be $26,000 per year, and the worst-case cash flows are projected to be -$4,500 per year. The company's analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows. what would be the expected net present value (NPV) of this project if the project's cost of capital is 11%? O $29,823 O $26,684 $34,532 O $31,393 Galbraith now wants to take into account its ability to abandon the project at the end of year 2 if the project ends up generating the worst-case scenario cash flows. If it decides to abandon the project at the end of year 2, the company will receive a one-time net cash inflow of $4,750 (at the end of year 2). The $4,750 the company receives at the end of year 2 is the difference between the cash the company receives from selling off the project's assets and the company's -$4,500 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flows in years 3 and 4 of the project Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account O $33,091 O $43,541 O $40,05t8 O $34,833 What is the value of the option to abandon the project