The NPV of a Project Based on Forecasted Cash Flows

Essay

The NPV of a project based on forecasted cash flows is $1 000,000.There is a 40% probability that cash flows from the project will be seriously reduced because competitors will enter the market.In this case, if the company did nothing, the NPV would be $500,000.The project can also be abandoned after two years and NPV will be $100,000.What is the expected NPV of the project when the option to abandon is considered.Should the projected be accepted?