CAOT 31 Lecture Notes - Lecture 24: Regression Analysis, Net Present Value, Conjoint Analysis
3 Oct 2020
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Document Summary
In this chapter, we will explore the various methods used to evaluate and choose innovation projects. Capital rationing = the allocation of a finite quantity of resources over different possible uses. Under capital rationing, the firm sets a fixed r&d budget, and then uses a rank ordering of possible projects to determine which will be funded. Budget might be based on industry or historical benchmark"s of own performance. R&d intensity = the ratio of r&d expenditures to sales. The rank ordering used in capital rationing may be established by any number of methods (quantitative, qualitative, or combination) Takes into account: payback period, risk and time value of money: net present value (npv) = the discounted cash inflows of a project minus the discounted cash outflows. Given what is this project worth today? . Npv = present value cash inflows present value cash outflows.
