What is an Abandonment Option?
An abandonment option refers to a section in a contract that gives parties in the contract the right to withdraw from a business deal before it matures. In other words, the abandonment option simply grants the ability to the option holder to continue with the investment project or to end it.
The abandonment option protects parties by giving them an opportunity to assess the profitability of their project, agreement, or investment, and also the freedom to withdraw from it, in case, it is not generating the intended profit. Abandonment options may generally be exercised without penalty.
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