According to real option theory, even if construction were instantaneous, it might be optimal not to immediately build a project whose value currently exceeds its construction cost, because:
A) There is sufficient probability that the value of the project will rise sufficiently in the future, and building today is mutually exclusive with building in the future.
B) There is sufficient probability that the value of the project will fall sufficiently far in the future such that you would lose money if you built it today.
C) There is never any reason to exercise a call option before its expiration date.
D) The cost of construction can be invested at a rate less than the cap rate or current cash yield) of the completed project.

Question

Quizplus · Accepted Answer

Real option theory suggests that waiting can be valuable if there is a chance that the project's value will increase in the future, making it optimal to delay construction even if the current value exceeds the cost.

According to Real Option Theory, Even If Construction Were Instantaneous