The example here is from oil exploration, but the reasoning is very general for sequential options. If the wildcat drilling reveals an oilfield, can be necessary to delineate the oilfield reducing the technical uncertainty about the size and quality of the oilfield reserves. After the appraisal phase, the oil company can develop or not the oilfield.
All phases require investment, the largest investment is in the development phase.
But for while, is not sure that there is any barrel of oil there, needs to drill the wildcat to know. The decision to drill the wildcat needs to look forward the possible future benefits at the development phase. The picture below illustrate the example. In the picture, EMV means expected monetary value , term used in exploration economics, but that can understood as the NPV for an exploratory prospect . The picture below shows all the sequential options from the wildcat drilling to the development phase, and passing by the three investments expected in the appraisal phase.