Asked by Jalen Taper on Jun 20, 2024
Verified
The option to wait has a value equal to the net present value of the project if it is started today versus the net present value if it is started at some later date.
Net Present Value
Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment, calculated as the difference between the present value of cash inflows and outflows.
Option To Wait
The flexibility to delay an investment or project to gather more information or wait for favorable conditions.
- Appraise the decision to hold off on project actions in the context of changing technological environments and fluctuating economic conditions.
Verified Answer
DR
Damian RodriguezJun 21, 2024
Final Answer :
False
Explanation :
The option to wait has value because it allows decision-makers to defer investment and gather more information, potentially leading to better outcomes. It is not simply the difference between the net present values of starting now versus starting later, but also includes the value of flexibility and additional information obtained by waiting.
Learning Objectives
- Appraise the decision to hold off on project actions in the context of changing technological environments and fluctuating economic conditions.
Related questions
Commodore Corporation Is Deciding Whether to Invest in a Project ...
If You Have a Successfully Crowdfunded Product and You Know ...
If the Firm Learns That the Complicated Technology Can Be ...
If the Firm Learns That the Complicated Technology Can Be ...
Many Project Teams Are Reluctant to Challenge Earlier Decisions