Public Sector R&D Valuation: A Practical Example

Peter D. Linquiti
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Peter D. Linquiti: George Washington University

Chapter 4 in The Public Sector R&D Enterprise: A New Approach to Portfolio Valuation, 2015, pp 74-105 from Palgrave Macmillan

Abstract: Abstract Chapter 4 demonstrates the practical feasibility of prospectively using a real options approach to value a portfolio of government R&D projects characterized by significant technical, commercial, and other interdependencies and uncertainties. The studied R&D projects focused on energy consumption in the chemicals industry and were sponsored by the Department of Energy between 2002 and 2004. Results from this practical example confirm that switching from a discounted cash flow method to a real options method for valuing R&D investments makes a material difference at both the project and portfolio levels. In addition, the risks that are taken with taxpayer money—usually obscured by traditional methods—become plainly visible in the approach that is demonstrated.

Keywords: DOE energy efficiency programs; portfolios of real R&D options; R&D project correlations; R&D project ranking; R&D risks (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:pal:stachp:978-1-137-54209-0_4

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DOI: 10.1057/9781137542090_4

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