WorldTrans is considering building a new casino at a cost of $10.0 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be $1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be $3.75 million per year for the next 5 years. The project's WACC is 10.6%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net $5.9 million after tax at t = 1. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations. Group of answer choices $15 $18 $12 $11 $13
WorldTrans is considering building a new casino at a cost of $10.0 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be $1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be $3.75 million per year for the next 5 years. The project's WACC is 10.6%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net $5.9 million after tax at t = 1. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations. Group of answer choices $15 $18 $12 $11 $13
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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WorldTrans is considering building a new casino at a cost of $10.0 million at t = 0. The after-tax cash flows the casino generates will depend on whether the state imposes a new income tax, and there is a 50-50 chance the tax will pass. If it passes, after-tax cash flows will be $1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be $3.75 million per year for the next 5 years. The project's WACC is 10.6%. If the tax is passed, the firm will have the option to abandon the project 1 year from now, in which case the property could be sold to net $5.9 million after tax at t = 1. What is the value (in thousands) of this abandonment option? Do not round intermediate calculations.
Group of answer choices
$15
$18
$12
$11
$13
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