Carlson Inc. is evaluating a project in India that would require a $5.8 million investment today (t = 0). The after-tax cash flows would depend on whether India imposes a new property tax. There is a 50-50 chance that the tax will pass, in which case the project will produce after-tax cash flows of $1,350,000 at the end of each of the next 5 years. If the tax doesn't pass, the after-tax cash flows will be $1,800,000 for 5 years. The project has a WACC of 10.4%. The firm would have the option to abandon the project 1 year from now, and if it is abandoned, the firm would receive the expected $1.35 million cash flow at t = 1 and would also sell the property for $4.45 million at t = 1. If the project is abandoned, the company would receive no further cash inflows from it. What is the value
(in thousands) of this abandonment option? Do not round intermediate calculations.
A. $99
B. $70
C. $94
D. $108
E. $89
Answer: C
You might also like to view...
Compare the advantages and disadvantages of the marketing communications tools of advertising and public relations
What will be an ideal response?
Which of the following statements is true of the duty of compensation?
A) It does not permit an agent to be paid on a contingency fee basis. B) If the parties in an agency cannot agree on the amount, courts will usually award the compensation claimed by one of the parties. C) It requires a principal to compensate an agent for any losses incurred when the agent is acting on behalf of the principal. D) It requires a principal to compensate an agent for services rendered even in the absence of a written agreement.
According to Table 8-1, which describes a production problem, suppose it is decided that the number of hours used in the assembly process must be at least 80 percent of the time available. How would this constraint be written?
A) 3T + 2C ? 160 B) 3T + 2C ? 200 C) 3T + 2C ? 200 D) 3T + 2C ? 160 E) None of the above
Trisha was injured when the delivery truck for a local furniture store struck her. The delivery driver claimed the brakes of the delivery truck failed, causing the accident. Trisha filed suit, and in her lawsuit named the delivery driver, the furniture store, the service station responsible for vehicle maintenance, and the manufacturer of the vehicle. Even though the manufacturer of the vehicle may be only 1 percent responsible for the accident, it may be required to pay a large percentage of the damages under the
A) collateral source rule. B) assumption of risk rule. C) joint and several liability rule. D) last clear chance rule.