Valuation under technological change

J Boston and J Pointon
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J Boston: University of Plymouth
J Pointon: University of Plymouth

Journal of the Operational Research Society, 1999, vol. 50, issue 3, 255-261

Abstract: Abstract This paper presents a valuation model, which includes the possibility of a future change in technology that affects in the short term the level of net cash flows receivable. The user can consider the effects of such a change on the flows, depending on whether the company is an innovator itself, or a follower of the innovations of others. The model is based upon a number of assumptions. The cash flows before the technological breakthrough follow a geometric Brownian motion. The breakthrough is modelled by a Poisson jump. For the innovator, cash flows are boosted, then decline through competition. By contrast, for the technological follower the breakthrough has an immediate depressing effect on cash flows, but subsequent cash flows rise and are modelled by an upward logistic curve.

Keywords: capital budgeting; research and development; stochastic processes (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1057/palgrave.jors.2600703

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