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You are considering a project that will cost you $1,000,000 initially. Your cost of capital...

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Finance

You are considering a project that will cost you $1,000,000 initially. Your cost of capital for this project is 8%. There is a 75% probability that the project will generate cash flows of $100,000 per year in perpetuity, and a 25% probability that the project will generate cash flows of $50,000 per year in perpetuity. If you could sell the project at the end of the first year for $720,811, what is the value of this abandonment option today?

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