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Managing the innovation projects of corporations by means of compound real options

Vol. 25, Iss. 3, MARCH 2019

Received: 15 January 2019

Received in revised form: 29 January 2019

Accepted: 12 February 2019

Available online: 29 March 2019

Subject Heading: INVESTING

JEL Classification: D81, G31, G32, O22, O32

Pages: 691–708

Yashin S.N. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation

Koshelev E.V. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation

Kuptsov A.V. National Research Lobachevsky State University of Nizhny Novgorod (UNN), Nizhny Novgorod, Russian Federation

ORCID id: not available

Subject The article investigates the issues of assessing the entire pool of strategic prospects for business development related to a particular innovation project.
Objectives The aim is to develop a model to estimate the cost of a project with its real options.
Methods The study presents a model to assess compound real options that have several underlying assets in the form of various projects or scenarios of their development. Technically, the structure of such compound real options involves a number of real options like the option to contract, the option to abandon, the option to expand, the deferment option, etc. in addition to project evaluation using the net present value method.
Results It is important to properly structure compound real options, i.e. to stick to the sequence as described in the methodology. The sequence of planning a compound option is subject to the logic of planning the business and particularly the production.
Conclusions The findings may be useful for manufacturing company financial analysts and top managers to make adequate decisions on investment and innovation project efficiency.

Keywords: innovation project, compound real option


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