High Roller Properties is considering building a new casino at a cost of P10 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 P1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be P3.75 million per year for the next 5 years. The project's WACC is 11.0%. 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 P6.5 million after tax at t = 1. What is the value (in thousands) of this abandonment option? O P308 P249 P224 O P277

High Roller Properties is considering building a new casino at a cost of P10 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 P1.875 million per year for the next 5 years. If it doesn't pass, the after-tax cash flows will be P3.75 million per year for the next 5 years. The project's WACC is 11.0%. 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 P6.5 million after tax at t = 1. What is the value (in thousands) of this abandonment option? O P308 P249 P224 O P277

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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