General Lighting currently supplies headlamps to a large segment of the automobile industry. Managers are contemplating a facility upgrade. This requires an up front investment of $600 million. The project's opportunity cost of capital is 18%, and the yield on U.S. Treasury securities is 5%. Management's estimates of the cash flows and probabilities for different decisions at different points in time is summarized by a tree diagram.

	600
	40	400
	0.3	0.7
250	990	295	1030
0.75	0.25	0.2	0.8

What is the abandonment option value if General Lighting uses Black-Scholes formula?

In order to be able to calculate the abandonment option for the project, General Lighting has calculated the following values needed:

The current project value is $536.02 million.

The project volatility is 39.60%.

The maturity of this abandonment option is 1 year.

The risk-free rate is 5%.

(Note: The exercise price is the price that the company can get for selling the plant when it decides to abandon the project.)

$30.18 million
	$18.39 million
	$21.07 million
	$24.65 million