A rational manager may be reluctant to commit to a positive Net Present Value project when:
A) The value of the option to abandon is high.
B) The exercise price is high.
C) The opportunity cost of capital is high.
D) The value of the option to wait is high.

Question

Quizplus · Accepted Answer

A rational manager may be reluctant to commit to a positive Net Present Value project when the value of the option to wait is high. This means that waiting to invest may result in a better return or a lower investment risk compared to investing immediately. In such a scenario, the manager may prefer to wait and evaluate other investment opportunities rather than locking in his funds in the project which has a positive NPV but has limited growth potential or involves high capital commitment.

A Rational Manager May Be Reluctant to Commit to a Positive