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Carlson Inc. is evaluating a project in India that would require a $ 5 . 5 million after - tax investment today ( t =

Carlson Inc. is evaluating a project in India that would require a $5.5 million after-tax investment today (t =0). The after-tax cash flows would depend on whether India imposes a new property tax. There is a 50-50 chance that the tax will pass, in which case the project will produce after-tax cash flows of $1,150,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax cash flows will be $2,100,000 for 5 years. The project has a WACC of 12.2%. The firm would have the option to abandon the project 1 year from now, and if it is abandoned, the firm would receive the expected $1.15 million cash flow at t =1 and would also sell the property and receive $4.95 million after taxes at t =1. If the project is abandoned, the company would receive no further cash inflows from it. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations.
a. $1,079
b. $985
c. $656
d. $1,314
e. $329

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