An insight gained by bringing the theory of options into standard capital budgeting analysis is:
A) independent projects with positive NPVs should very often be rejected.
B) independent projects with negative NPVs should very often be accepted.
C) projects, as call options, can be more valuable if the decision to start up the project is delayed until relevant information is released.
D) projects, as call options, can be less valuable if the decision to start up the project is delayed until relevant information is released.

Question

Quizplus · Accepted Answer

Incorporating options theory into capital budgeting analysis reveals that projects can be viewed as call options, where the value of waiting for more information before initiating a project can actually increase its value. This is because delaying the decision allows for better informed choices, potentially leading to higher returns or the avoidance of losses.

An Insight Gained by Bringing the Theory of Options into Standard