The option to defer an investment reduces risk for a company because it does not need to

Question:

The option to defer an investment reduces risk for a company because it does not need to commit the full investment outlay until there is more certainty about the true value of the underlying asset. But the implied cost of capital for the project including flexibility is higher than for the project without flexibility. Explain why this is the case.

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...