An Insight Gained by Bringing the Theory of Options into Standard

question 24

Multiple Choice

An insight gained by bringing the theory of options into standard capital budgeting analysis is:

• A) independent projects with positive NPVs should very often be rejected.
• B) independent projects with negative NPVs should very often be accepted.
• C) projects, as call options, can be more valuable if the decision to start up the project is delayed until relevant information is released.
• D) projects, as call options, can be less valuable if the decision to start up the project is delayed until relevant information is released.

---

Definitions:

Cognitive Dissonance Theory

A theory suggesting that individuals experience mental discomfort and psychological stress when holding two or more contradictory beliefs, values, or attitudes.

Attribution Theory

A psychological theory that explains how individuals pinpoint the causes of their own and others' behavior and events.

Equity Theory

A theory in social psychology that proposes individuals assess the fairness of their relationships by analyzing their input and outcome ratios to those of others.

Philip Zimbardo

An American psychologist best known for his leadership of the Stanford Prison Experiment and contributions to the understanding of social psychology.