High Roller Properties is considering building a new casino at a costof $10 million at t = 0. The after-tax cash flows the casino generateswill depend on whether the state imposes a new income tax, and there isa 50-50 chance the tax will pass.If it passes, after-tax cash flowswill be $1.875 million per year for the next 5 years.If it doesn'tpass, the after-tax cash flows will be $3.75 million per year for thenext 5 years.The project's WACC is 11.0%.If the tax is passed, thefirm will have the option to abandon the project 1 year from now, inwhich case the property could be sold to net $6.5 million after tax att = 1.What is the value (in thousands) of this abandonment option?a. $202b. $224c. $249d. $277e.$308(Dollars in thousands)WACC11.0%Investment cost$10,000CFs, no tax$3,750CFs, with tax$1,875
3.High Roller Properties is considering building a new casino at a costof $10 million at t = 0. The after-tax cash flows the casino generateswill depend on whether the state imposes a new income tax, and there isa 50-50 chance the tax will pass.If it passes, after-tax cash flowswill be $1.875 million per year for the next 5 years.If it doesn'tpass, the after-tax cash flows will be $3.75 million per year for thenext 5 years.The project's WACC is 11.0%.If the tax is passed, thefirm will have the option to abandon the project 1 year from now, inwhich case the property could be sold to net $6.5 million after tax att = 1.What is the value (in thousands) of this abandonment option?a. $202b. $224c. $249d. $277e.$308(Dollars in thousands)WACC11.0%Investment cost$10,000CFs, no tax$3,750CFs, with tax$1,875
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