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Problem: Consider a simple restaurant which requires a $100,000 investment today and produces four cash flows of 25,000 with probability 1/2 or four cash flows
Problem: Consider a simple restaurant which requires a $100,000 investment today and produces four cash flows of 25,000 with probability 1/2 or four cash flows of +75,000 with probability 1/2. The required rate of return is 10% Questions: a) What is the NPV of this project? b) What is the NPV if you abandon the project in the scenario that you get negative cash flows? c) Define the option to abandon value as the difference between b) and a). What is the option to abandon value
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