Q . How suppose the ESI can abandon the project at the end of the first year by selling it for $50 million . E.SI will still receive the Year 1 cash flows , but will receive no cash flows in subsequent Years. Assume the salvage Value is risky and should be discounted at the WALL. WALL_ 12`` Salvage Value = 5 5; Risk - free rate = Decision Tree Analysis Cost Future Cash Flows NPV this Probability* Probability 1 2 Scenario 40 %` Expected NPV of Future CFS = When abandonment is factored in , the very large negative NPV under bad conditions is reduced , and the expected NPV becomes positive . Note that even though the MPV of medium is still negative , it is higher than it would be if the project was abandoned at year I if conditions are medium