Valuing innovative technology R&D as a real option : application to fuel cell vehicles

This thesis aims to elucidate real option thinking and real option valuation techniques for innovative technology investment. Treating the fuel cell R&D investment as a real option for General Motor's light passenger vehicle fleet, the thesis presents a 3-step approach to value the R&D and its influence on the fleet value, in which the uncertainties and managerial flexibility are proactively accounted for and evaluated. To comprehensively assess the investment, the thesis includes analyses and discussions on fuel cell technology, industry, and related public policies, as well as illustrations and comparisons of various project valuation techniques. It explains in detail the traditional capital budgeting technique, Discounted Cash Flow, and real option valuation techniques such as the finance-based methods and simulation, including their underlying assumptions, analysis of uncertainties, treatments of flexibility, mechanisms, advantages, and limitations. The examination of the project valuation techniques and the GM case leads to the proposed valuation approach that (1) utilizes Monte Carlo simulation to model the uncertainties that affect fleet profit; (2) employs constrained optimization by linear programming to find out the annual optimal fleet profit,

Department dc:contributor.department

Massachusetts Institute of Technology. Department of Civil and Environmental Engineering

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2005

Author dc:creator

• Tsui, Maggie

Advisor dc:contributor.advisor

• Richard de Neufville.

• Technology and Policy Program.
• Civil and Environmental Engineering.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/34541

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/34541