Proof by Cox, Ross, Rubinstein (1979), binomial tree model is simpler to understand for the practitioner and less elegant than Black-Scholes model. Black and Scholes developed the Black-Scholes model to value financial options that focus on factors affecting the value of the underlying financial asset over time. ROV extends valuation models used to price financial options and applies them to investments in real assets. Real option valuation (ROV) values the managerial flexibility to make ongoing decisions regarding implementation of investment projects and deployment of real assets. Recently, real options emerged as an alternative to simplistic discounted cash flow methods. Therefore, traditional valuation methods undervalue the product innovation because they are unable to capture the value of management flexibility. Managerial choices (as delay, expand, switching etc.) are thus presumed to be limited to the initial decision. The traditional NPV method, which was initially developed to value bonds or stocks by passive investors, implicitly assumes that corporations hold a collection of real assets passively. Traditional discounted cash flow approaches, such as net present value (NPV), have traditionally been the preferred methods for evaluating investments in product innovation. The heart of a product innovation is its value. Anticipating change and expeditiously responding to the dynamics of the business environment via product innovation are important precursors for achieving sustainable competitive positions and exceptional performance. Product innovation is a complex, cross-functional and contingent, dynamic process, which is difficult to manage. In the current dynamic manufacturing environment, companies must innovate successfully if they wish to remain competitive. Effective product innovation is imperative for the survival, growth and profitability of most design and manufacturing enterprises. Book excerpt: Inhaltsangabe:Abstract: Global competition, emerging technologies, and an ever increasing need for superior products in shorter time frames all contribute to drive companies to adopt new and innovative approaches to product innovation. This book was released on with total page 86 pages. Book Synopsis Real Option Valuation of Product Innovation by : Yuanyun KangÄownload or read book Real Option Valuation of Product Innovation written by Yuanyun Kang and published by.
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