A rational manager may be reluctant to commit to a positive net present value project when
A)the value of the option to abandon is high.
B)the exercise price is high.
C)the opportunity cost of capital is high.
D)the value of the option to wait is high.

Question

Quizplus · Accepted Answer

When the value of the option to wait is high, it may be beneficial to delay committing to the project in order to gather more information and reassess the situation before making a decision. This can reduce the risk of making a poor investment decision and improve the chances of achieving a positive net present value in the long run. However, if the opportunity cost of capital is high and the delay in committing to the project results in a significant loss of potential return, the rational manager may need to reconsider and commit to the project despite the high value of the option to wait.

A Rational Manager May Be Reluctant to Commit to a Positive