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'Time to build, option value and investment decisions': a comment

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UNSPECIFIED (2000) 'Time to build, option value and investment decisions': a comment. JOURNAL OF FINANCIAL ECONOMICS, 56 (2). pp. 325-332. ISSN 0304-405X.

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Abstract

We correct the analysis of the model of time to build in Majd and Pindyck (1987 Journal of Financial Economics 18, 7-27) for the omission of an essential optimality condition, Our analysis reveals an additional insight: long times to build reduce the effects of increased project value volatility (i,e., higher investment thresholds) in comparison to standard real option models of investment under uncertainty, where investment is instantaneous. Thus, a 'naive' NPV rule can sometimes be an appropriate initial guide to investment. (C) 2000 Elsevier Science S.A. All rights reserved. JEL classification: C63; D92.

Item Type: Journal Article
Subjects: H Social Sciences > HG Finance
H Social Sciences > HC Economic History and Conditions
Journal or Publication Title: JOURNAL OF FINANCIAL ECONOMICS
Publisher: ELSEVIER SCIENCE SA
ISSN: 0304-405X
Official Date: May 2000
Dates:
DateEvent
May 2000UNSPECIFIED
Volume: 56
Number: 2
Number of Pages: 8
Page Range: pp. 325-332
Publication Status: Published

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