The correct answer is A because the abandonment option should be exercised when the present value of the cash flows from continuing the investment is lower than the cash flow from abandoning it. This ensures the company maximizes its value by discontinuing the investment under unfavorable conditions.

• Option B is incorrect because the abandonment option is not exercised when the cash flows are equal; it is only exercised when abandoning yields a higher cash flow.
• Option C is incorrect because if the present value of continuing cash flows is higher, the company should retain the investment rather than abandon it.