Question
Option to abandon Suppose that we are drilling an oil well. The drilling rig costs $300 today and in one year the well is either
- Option to abandon
Suppose that we are drilling an oil well. The drilling rig costs $300 today and in one year the well is either a success or a failure.
- The outcomes are equally likely. The discount rate is 10%.
- The PV of the successful payoff at time one is $575.
- The PV of the unsuccessful payoff at time one is $0. If the salvage value of the drilling rig equal to $250.
Estimate the NPV of this project considering the option to abandon and it is value?
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Fixed Income Securities Tools For Todays Markets
Authors: Bruce Tuckman, Angel Serrat
3rd Edition
0470891696, 978-0470891698
