A project is worth $15 million today without an abandonment option. Suppose the value of the project is $20 million one year from today with high demand and $10 million with low demand. It is possible to sell off the project for $13 million if the demand is low. Calculate the value of the abandonment option if the discount rate is 5% per year. [Use the replicating portfolio method]
A. $1.21 million.
B. $2.86 million.
C. $1.9 million.
D. None of the above.

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The Answer of A project is worth $15 million today without an abandonment option. Suppose the value of the project is $20 million one year from today with high demand and $10 million with low demand. It is possible to sell off the project for $13 million if the demand is low. Calculate the value of the abandonment option if the discount rate is 5% per year. [Use the replicating portfolio method]
A. $1.21 million.
B. $2.86 million.
C. $1.9 million.
D. None of the above.

A Project Is Worth $15 Million Today Without an Abandonment