Which option lists a valid real option component?

• A. Option to follow on
• B. Option to abandon
• C. Option to delay
• D. Option to invest

Answer: (D)

Real options capture the extra value that comes from managerial choices under uncertainty. The option to invest is a classic growth option: it gives the manager the right, but not the obligation, to put more capital into the project in the future if conditions look favorable. This adds upside potential because if the project turns out well, additional investment can unlock greater profitability.

The value comes from exercising that right only when it makes sense, which is why it’s considered a real option component. It involves an additional investment cost (the strike price) and a time window to decide, so it behaves like a genuine option on future value.