Whether to Invest in a Project Today or to Postpone

question 1

Multiple Choice

Whether to invest in a project today or to postpone the decision until next year is a decision facing the CEO of the Aaron Co. The project has a positive expected NPV, but its cash flows could be less than expected, in which case the NPV could be negative. No competitors are likely to invest in a similar project if Aaron decides to wait. Which of the following statements best describes the issues that Aaron faces when considering this investment timing option?

• A) the more uncertainty about the future cash flows, the more logical it is for aaron to go ahead with this project today.
• B) since the project has a positive expected npv today, this means that its expected npv will be even higher if it chooses to wait a year.
• C) since the project has a positive expected npv today, this means that it should be accepted in order to lock in that npv.
• D) waiting would probably reduce the project's risk.
• E) the investment timing option does not affect the cash flows and will therefore have no impact on the project's risk.

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Definitions:

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The evolution of an individual’s personality traits over time, influenced by both inherited characteristics and environmental factors.

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Mutual dependence between things or people, where each is affected by or relies on the other.

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The behaviors and expectations that are learned by individuals to fit into their society, including roles based on their age, gender, and social position.

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Being engaged in action or exerting power or force; not passive.