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Irreversibilidad e incertidumbre de las decisiones financieras en i&d
[Irreversibility and uncertainty of the financial investments on r&d]

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  • Masci, Martín Ezequiel

Abstract

The traditional methods for the valuation of investments are based on the possibility of calculating discount cash flows. The present paper analyses the problem associated to investments on innovative products, which require an important demand of R&D. The mentioned investments present irreversibility, flexibility and uncertainty characteristics. Therefore, it is proposed the Real Options methodology. To carry it out, investigations processes and their relationship with the financial market are described, with the aim of dealing with the irreversibility and the possibilities of making flexible a project. Finally, the different valuation methods are reviewed, focusing on the Black & Scholes formula to consider the options to wait, abandon, expand and suspend. It is necessary to take into account that the mentioned criteria does not replace the traditional valuation methods (especially NPV), but it should be incorporated to them, to appropriately treat the current context.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40970.

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Date of creation: 30 Jun 2012
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Handle: RePEc:pra:mprapa:40970

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Keywords: Research and Development; Real Options; uncertainty; Black & Scholes;

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  1. Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1992. "Waiting to Invest: Investment and Uncertainty," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 65(1), pages 1-29, January.
  2. Saman Majd & Robert S. Pindyck, 1985. "Time to Build, Option Value, and Investment Decisions," NBER Working Papers 1654, National Bureau of Economic Research, Inc.
  3. Timothy Sturgeon & Johannes Van Biesebroeck & Gary Gereffi, 2008. "Value chains, networks and clusters: reframing the global automotive industry," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 8(3), pages 297-321, May.
  4. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers, Princeton, Department of Economics - Financial Research Center 91, Princeton, Department of Economics - Financial Research Center.
  5. M. L. Weitzman & K. Roberts, 1979. "Funding Criteria for Research, Development and Exploration Projects," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 234, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Carriere, Jacques F., 1996. "Valuation of the early-exercise price for options using simulations and nonparametric regression," Insurance: Mathematics and Economics, Elsevier, vol. 19(1), pages 19-30, December.
  7. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management, Anderson Graduate School of Management, UCLA qt43n1k4jb, Anderson Graduate School of Management, UCLA.
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