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?
A) option to delay
B) option to expand
C) option to abandon
D) option to switch

Question

Quizplus · Accepted Answer

Jim is taking the option to delay, which is a real option where he is choosing not to sell at this time in order to wait for the value of the farm to increase after the highway is built. This option allows him to wait and gather more information before making a decision on whether to sell or not. The other options, such as option to expand, option to abandon, and option to switch, do not apply to Jim's situation.

Jim Owns a Farm That He Wants to Sell