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I have an asset that I am considering for a project that will last for 5 years: What is the value of the abandonment option?

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I have an asset that I am considering for a project that will last for 5 years. If I invest in the project, I have an option to abandon and sell the asset in year 2.

Purchase Price $50,000
Abandonment Selling Price in Year 2 $25,000
Cost of Capital 12%

Year 1 Year 2 Year 3 Year 4 Year 5
Free Cash Flow Forecast
35% $6000 $80000 $10000 $14000 $22000
40% $2500 $4700 $8600 $10000 $17000
25% $(3000) $(4500) $(5600) $(6500) $4000

What is the value of the abandonment option?

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The value of the abandonment options are determined.

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Note that I have included two sheets. One sheet lays out the value if the cash flow in ...

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