Question 6:

Your firm is analyzing a 4-year investment opportunity that will require an initial expense of $119,000. The project has a 40% change of success. If the project succeeds, it will generate $1,591,000 each year. However, if the investment fails, the cash flows fall to - $214,000 each year.

You have the option to terminate the project after the second year. There is no salvage value at the end of the project.

If the required return is 17%, what is the value of the option to terminate the project?