What is Abandonment Value?
Abandonment value refers to the value of a project or investment were it to be liquidated presently.
How Does Abandonment Value Work?
Also called liquidation value, the abandonment value of a project or investment is the immediate value in cash that would be generated from liquidating a project or selling an investment.
Why Does Abandonment Value Matter?
A given project's abandonment value can be an important consideration for a company. Should the company learn that not only is a project not profitable but has also incurred costs, it may be more beneficial to liquidate the project for its abandonment value (if the net present value of future cash flows is less).