Whats the value of the option to wait It is tempting to say that it is 14286 160 1714 but thats wrong Why Because as we discussed earlier an option can never have a negative value In this case the option to wait has a zero value

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There is another important aspect regarding the option to wait. Just because a project has a negative NPV today doesn't mean that we should permanently reject it. For example, suppose an investment costs $120 and has a perpetual cash flow of $10 per year. If the discount rate is 10 percent, then the NPV is $10/.10 - 120 = -$20, so the project should not be taken now.

We should not just forget about this project forever, though. Suppose that next year, for some reason, the relevant discount rate fell to 5 percent. Then the NPV would be $10/.05 - $120 = $80, and we would take the project (assuming that further waiting isn't even more valuable). More generally, as long as there is some possible future scenario under which a project has a positive NPV, then the option to wait is valuable, and we should just shelve the project proposal for now.

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