Describe the real option in each of the following cases: a. Deutsche Metall

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.