The difference between the NPV of the investment and the value of the option to invest is:
I. The value for the option to invest still have a positive value at high interest rates while the NPV could be negative.
II. The value of the option to invest has a negative value at low interest rates while NPV
Could have high positive value.
III. The value of the option to invest and the NPV of the project are unrelated.
A) I only
B) II only
C) III only
D) II and III only

Question

Quizplus · Accepted Answer

The option to invest can still hold value at high interest rates due to the flexibility it provides, even if the NPV is negative.

The Difference Between the NPV of the Investment and the Value