Title

Valuation for the Strategic Managment of Research and Development Projects

Abstract

The most widely used financial technique for evaluating projects is discounted cash flow; however, discounted cash flow analysis fails to consider flexibility. Real options analysis offers an alternative technique that provides value for managerial flexibility that is inherent in most R&D projects. This article investigates the deferral option using computer simulation. There are give variable that determine the value of the deferral option, and simulations analyze these variables over a wide range of conditions. Sensitivity analysis on the five variables is performed and the results are discussed.

Department(s)

Engineering Management and Systems Engineering

Keywords and Phrases

Deferral Option; Net Present Value; Project Valuation; Real Options; Research and Development

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2004 American Society of Engineering Management, All rights reserved.

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