A Project Is Worth $12 Million Today Without an Abandonment

Multiple Choice

A project is worth $12 million today without an abandonment option if the interest rate is 5 percent per year. Suppose the value of the project is either $18 million one year from today (if product demand is high) or $8 million (if product demand is low) . It is possible to sell off the project for $10 million if product demand is low. Calculate the value of the abandonment option if the discount rate is 5 percent per year.

A) $1.03 million
B) $0.88 million
C) $1.90 million
D) $5.14 million