Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 23

A firm that has undertaken a project has the option to sell some of its equipment and facilities and to sublet out some of the project workload. The project's current value is V 0 = $10 M. Anytime over the next three years, the firm can sell off $4M in resources but receive an expected 20% decrease in net cash flows (and therefore, a 20% decrease in project value). Let r = 6% and a = 30%. A binomial lattice will be used with a one-year time increment. Determine the value of this scale-down investment opportunity.