FIN.8:4.6 - Compare waiting with acting now

Waiting can preserve the ability to avoid an unfavorable commitment and can postpone the payment itself. It can also lose interim operating cash, customer access, a favorable price or a limited exercise window. Include both sides. A longer legal expiry need not mean a longer economic opportunity if competitors can enter or necessary capacity disappears.

Compare immediate investment, waiting under a specified information and access process, and declining. At a later decision, compare immediate exercise with continued waiting only where continued waiting remains feasible. A positive immediate exercise value need not make immediate exercise best; conversely, more uncertainty does not universally make waiting more valuable once costs, competition, obligations and risk-bearing conditions change.

The exercise threshold is a result of that comparison. It can differ from zero NPV for immediate investment because exercising can surrender a valuable remaining choice. Rebuild the threshold if exercise cost, foregone cash, the arrival of information or risk grounds change. Do not transfer the numerical threshold from a financial call to an operating project whose holder cannot trade or wait on the same terms.