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Abandonment Value

What is 'Abandonment Value'

The value of a project or asset if it were immediately liquidated or sold. The abandonment value of an asset or project can vary for a variety of reasons including liquidity, supply-demand factors and implied fair value appraisals performed by certified appraisers.

Explaining 'Abandonment Value'

The abandonment value is generally a cash value, or equivalent, associated with an asset. This value is important for companies when analyzing the profitability of particular projects or assets and deciding whether they should be maintained or abandoned. Abandonment values are also an important factor in bankruptcy proceedings, where assets are typically sold at distressed or liquidation prices.

Abandonment Value FAQ

What is abandonment value?

Abandonment value is the value of an investment or project of it were to be sold or liquidated immediately.

What is abandonment option?

An abandonment option is a clause included in an investment contract that permits either party to withdraw from the contract before maturity.

What is the value of the abandonment option?

Abandonment value, also known as liquidation value, refers to the cash value of a project if the contract is ended after deducting all debts that must be repaid.

How do you calculate the real value of an option?

NPV = F / [ (1 + r)^n ] where, PV = Present Value, F = Future payment (cash flow), r = Discount rate, n = the number of periods in the future is the most straightforward approach to real options pricing.

What are types of real options?

Common types of real options include option to wait, option to abandon, option to switch, option to expand, and option to contract.

Further Reading


Abandonment value and project life
books.google.com [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …

Strategic parameters for capital budgeting when abandonment value is stochasticStrategic parameters for capital budgeting when abandonment value is stochastic
www.tandfonline.com [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …

The effects of an uncertain abandonment value on the investment decisionThe effects of an uncertain abandonment value on the investment decision
www.tandfonline.com [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …

On optimal asset abandonment and replacementOn optimal asset abandonment and replacement
www.jstor.org [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …

Investor valuation of the abandonment optionInvestor valuation of the abandonment option
www.sciencedirect.com [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …

Real options and interactions with financial flexibilityReal options and interactions with financial flexibility
www.jstor.org [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …

The role of abandonment value in capital asset managementThe role of abandonment value in capital asset management
www.tandfonline.com [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …

Uncertainty and the abandonment optionUncertainty and the abandonment option
www.tandfonline.com [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …

Valuation of the minimum revenue guarantee and the option to abandon in BOT infrastructure projectsValuation of the minimum revenue guarantee and the option to abandon in BOT infrastructure projects
www.tandfonline.com [PDF]
… abandonment value. They recognise that the option to abandon a project early can be valuable, and illustrate the option's practical importance. Their examples, however, assume that the project will be abandoned as soon as the salvage value exceeds …



Q&A About Abandonment Value


What is abandonment value?

Abandonment value is the value of an investment or project of it were to be sold or liquidated immediately.

What is abandonment option?

An abandonment option is a clause included in an investment contract that permits either party to withdraw from the contract before maturity.

What is the value of the abandonment option?

Abandonment value, also known as liquidation value, refers to the cash value of a project if the contract is ended after deducting all debts that must be repaid.

How do you calculate the real value of an option?

NPV = F / [ (1 + r)^n ] where, PV = Present Value, F = Future payment (cash flow), r = Discount rate, n = the number of periods in the future is the most straightforward approach to real options pricing.

What are types of real options?

Common types of real options include option to wait, option to abandon, option to switch, option to expand, and option to contract.

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