The option to wait:
I.may be of minimal value if a project is dependent upon rapidly changing technology.
II.is partially dependent upon the discount rate applied to the project being evaluated.
III.is defined as temporarily shutting down a project for a period of time.
IV.has a value equal to the NPV of a project if it is started at a later date minus the NPV if the project is started today.

Question

Quizplus · Accepted Answer

I is correct because rapidly changing technology can render a project obsolete, reducing the value of waiting. II is correct because the discount rate affects the present value of future cash flows, influencing the decision to wait. IV is correct because the option to wait allows for the comparison of the present value of future project benefits against current initiation, essentially calculating the value of delaying the project. III is incorrect because the option to wait refers to the decision to delay starting a project, not temporarily shutting it down.

The Option to Wait