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The cash flows associated with a project can be represented by the following decision tree (conditional probabilities are in parentheses): Year 0 -$600 Year
The cash flows associated with a project can be represented by the following decision tree (conditional probabilities are in parentheses): Year 0 -$600 Year 1 Year 2 Year 3 $200 (.5) $300 (.5) $400 (.5) $400 (.5) $400 (.5) $500 (.5) $600 (.5) $500 (.5) $600 (.5) $700 (.5) $700 (5) $700 (.5) $800 (.5) $900 (.5) The firm has the ability to abandon this project at Year 1 and receive $780 at Year 1. Using a risk-adjusted discount rate of 11 percent, determine the increase in the net present value for this project when abandonment is considered. $26.54 O $42.79 $30.88 $35.03 O $38.99
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