The option to wait: I.may have minimal value if a project relates to a rapidly changing technology.
II)is partially dependent upon the discount rate applied to the project being evaluated.
III)could have a negative value.
IV)is valued based on a project's EAC.

Question

Quizplus · Accepted Answer

I) The value of waiting in the context of rapidly changing technology is minimal because delaying could mean missing out on current technological advantages. II) The discount rate affects the present value of future cash flows, thus impacting the valuation of the option to wait. III) The option to wait could indeed have a negative value if the costs of delaying a project outweigh the benefits of waiting for more information or better conditions. IV) The option to wait is not typically valued based on a project's Equivalent Annual Cost (EAC); instead, it's more related to the flexibility and strategic value it provides, which isn't captured by EAC.

The Option to Wait: I