Given the following data for Project X: NPV of the project without abandonment: -$2 million; abandonment option value: $4 million. Calculate the adjusted present value (APV) of the project:
A) -$2 million
B) +$4 million
C) +$2 million
D) none of the above

Question

Quizplus · Accepted Answer

The APV of the project is calculated by adding the NPV of the project without abandonment and the option value of abandonment. Therefore, APV = -$2 million + $4 million = +$2 million. Option B) is not correct as it only provides the abandonment option value and does not account for the initial NPV of the project without abandonment. Option A) is not correct as it only considers the initial NPV of the project without accounting for the option value of abandonment. Option D) is not correct as there is a correct answer.

Given the Following Data for Project X: NPV of the Project