Describe the real option in each of the following cases:

a. Deutsche Metall postpones a major plant expansion. The expansion has positive NPV on a discounted-cash-flow basis but top management wants to get a better fix on product demand before proceeding.

b. Western Telecom commits to production of digital switching equipment specially designed for the European market. The project has a negative NPV, but it is justified on strategic grounds by the need for a strong market position in the rapidly growing, and potentially very profitable, market.

c. Western Telecom vetoes a fully integrated, automated production line for the new digital switches. It relies on standard, less-expensive equipment. The automated production line is more efficient overall, according to a discounted-cash-flow calculation.

d. Mount Fuji Airways buys a jumbo jet with special equipment that allows the plane to be switched quickly from freight to passenger use or vice versa.

e. The British–French treaty giving a concession to build a railroad link under the English Channel also required the concessionaire to propose by the year 2000 to build a “drive-through link” if “technical and economic conditions permit . . . and the decrease in traffic shall justify it without undermining the expected return on the first [rail] link.” Other companies will not be permitted to build a link before the year 2020.