Crossair - The Introduction of the Differential Global Positioning System (DGPS)

Published 01 Jan 1998
Reference 4751
Topic Operations
Region Europe
Summary

Crossair, a Swiss regional airline, has to decide on how to obtain a critical new technology, GPS. It can develop the technology in house (with a supplier) or source it from the open market in the year 2000. A discounted cash flow (DCF) analysis shows only a marginal benefit from developing the technology in house, which does not justify the management attention. Does DCF analysis fully capture the project's attractiveness?

Teaching objectives

Introduce the real options pricing framework applied to the evaluation of R and D projects Discuss the correct discounting rate for R and D projects with non-systematic risk Understand the influence of variability on the project and option value See the relevance of the real options pricing framework for the strategic evaluation of organizational flexibility in adopting and applying technologies

Keywords
  • AR1998
  • RD0598