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Cash Flow Immediacy and the Value of Investment Timing
Author(s) -
Boyle Glenn W.,
Guthrie Graeme A.
Publication year - 2003
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/1475-6803.00074
Subject(s) - immediacy , investment (military) , cash flow , economics , net present value , monetary economics , return on investment , value (mathematics) , microeconomics , present value , econometrics , finance , production (economics) , mathematics , statistics , epistemology , politics , political science , law , philosophy
In a model with stochastic interest rates, irreversible investment, and two investment dates, the value of investment delay has two components: the expected gain from committing now to investment at a future date and the potential gain from the ability to reverse this commitment. Holding net present value constant, we show that the values of both these components are increasing in the proportion of project cash flows that accrue in the more distant future. Our results emphasize the importance of the interaction between cash flow immediacy and interest rate uncertainty for the optimal investment policy.