Section 10.4 describes four types of real option. For each of the following cases state which type of option is involved:
a. Deutsche Metall postpones a major plant expansion. The expansion has a positive NPV on a discounted cash-flow basis, but before proceeding, management wants to see how product demand grows.
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 a rapidly growing and potentially very profitable market.
c. Western Telecom vetoes a fully integrated, automated production line for the new 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 and vice versa.