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?
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