Jim owns a farm that he wants to sell.He learns that a highway will be built near the farm in the future,giving access to the farmland from a nearby city and thus making the land attractive to housing developers.Expecting the net present value (NPV)of the sale to be greater after the highway is built,he decides not to sell at this time.What real option is Jim taking?

Question

Quizplus · Accepted Answer

Jim is taking the option to delay, as he is choosing to wait until the highway is built to sell the farm. This is a real option, as it allows him to potentially receive a higher NPV in the future. The other options (B-option to expand, C-option to abandon, D-option to switch, and E-option to sell) are not applicable in this situation.

Jim Owns a Farm That He Wants to Sell