Question
ICA: Option to Abandon Cost of disinvestment = PV (I) = $2 million Price of oil P = $7 or $13 with equal probability Variable
ICA: Option to Abandon
Cost of disinvestment = PV (I) = $2 million
Price of oil P = $7 or $13 with equal probability
Variable production cost V = $12 per barrel
E[production] = Q = 200,000 barrels/year
i = 10%
Calculate
NPV (abandon today), NPV (wait 1 year) and compare
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Financial Management Principles And Practice
Authors: Timothy J. Gallagher, Joseph D. Andrew
3rd Edition
0131768824, 978-0131768826
