Valuation for the Strategic Managment of Research and Development Projects
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.
N. Lewis et al., "Valuation for the Strategic Managment of Research and Development Projects," Engineering Management Journal, American Society of Engineering Management, Dec 2004.
Engineering Management and Systems Engineering
Keywords and Phrases
Deferral Option; Net Present Value; Project Valuation; Real Options; Research and Development
Article - Journal
© 2004 American Society of Engineering Management, All rights reserved.