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What is Abandonment Value?

The Abandonment Value is the salvage value left if a capital project is stopped short at an unknown time.

Authors Robichek and Van Horne (1967) offered a very concise argument for the importance of including an Abandonment Value in the calculations leading to a company decision to undertake a long-term capital project. The calculation is useful for risk assessment, and tries to find the value at which project assets could be liquidated if the project could not be continued for some reason.

Additionally, the option to abandon a project can be weighed systematically with an attuned method of abandonment value assessment. Abandonment value is discussed in the practice of bankruptcy law and is also known as liquidation value.

A business may also assign an abandonment value to the “best alternative use” for a project or asset.

Keywords: bankruptcy, capital project, liquidation value, abandonment value, abandonment option, project assets,