A Project Is Worth $15 Million Today Without an Abandonment

Multiple Choice

A project is worth $15 million today without an abandonment option. Suppose the value of the project is either $20 million one year from today (if product demand is high) or $10 million (if product demand is low) . It is possible to sell off the project for $13 million if product demand is low. Calculate the value of the abandonment option if the discount rate is 5 percent per year.

A) $1.21 million
B) $2.86 million
C) $1.90 million
D) $1.64 million