Faculty Research at Morehead State University

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We examine the valuation of abandonment decision in a contingent claims model with uncertainty in future market conditions and analyze the effect of determinants on the abandonment value. We find the abandonment value is positively related with the number of abandonment opportunities. The increase in the volatility, variable cost, and facility value increases the expected abandonment value, whereas the increase in the growth rate and depreciation rate reduces the expected abandonment value. The volatility, growth rate, and depreciation rate are negatively related with the exit threshold, whereas the variable cost and facility value are positively related with the exit threshold.



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