b$.$ Now suppose the BSI can abandon the project at the end of the first year by selling it for $$6$ million. BSI will

still receive the Year $1$ cash flows, but will receive no cash flows in subsequent years. Assume the salvage value

is risky and should be discounted at the WACC.

When abandonment is factored in$,$ the very large negative NPV under bad conditions is reduced, and the expected NPV

becomes positive. Note that even though the NPV of medium is still negative, it is higher than it would be if the project was

abandoned at year $1$ if conditions are medium.