Explain the “real options” approach to valuation of project investments, and the claim that the “nave” NPV rule which ignores the value of such…

Explain the “real options” approach to valuation of project investments, and the claim that the “naïve” NPV rule which ignores the value of such options leads to adverse investment decisions. In your discussion compare two alternative situations, one where uncertainty involves probability distributions which are independently and identically distributed (i.i.d.) over time, and another where there is substantial resolution of uncertainty over time. You may use numerical examples.
Please answer this question as detail as possible.







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