According to Real Option Theory, Even If Construction Were Instantaneous

question 9

Multiple Choice

According to real option theory, even if construction were instantaneous and the property market were perfectly liquid, 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.

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Definitions:

Informal Leadership

The ability to influence and guide others without having a formal authority or position, often resulting from personal traits, expertise, or relationships.

Integrity

The quality of being honest and having strong moral principles.

Positive Reinforcement

A method of encouraging desired behavior by offering rewards or positive outcomes in response to such behavior.

Delegating

The process of assigning responsibility and authority to someone else while retaining accountability for the outcome.