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Valuation Methods From Technology Innovation

Real options valuation uses decision trees to evaluate technological innovations. Decision trees model scenarios and factors like deferring or changing a project. Real options give management flexibility to increase value. The value of an innovation is calculated using a decision tree that considers application areas, market impacts, and project values at each node. Companies create value by investigating market impact, costs, and affected actors, then using decision trees to estimate costs in different scenarios and make optimal decisions.

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Miguel Angel Herrera Triviňo
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78 views1 page

Valuation Methods From Technology Innovation

Real options valuation uses decision trees to evaluate technological innovations. Decision trees model scenarios and factors like deferring or changing a project. Real options give management flexibility to increase value. The value of an innovation is calculated using a decision tree that considers application areas, market impacts, and project values at each node. Companies create value by investigating market impact, costs, and affected actors, then using decision trees to estimate costs in different scenarios and make optimal decisions.

Uploaded by

Miguel Angel Herrera Triviňo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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VALUATION METHODS FROM

TECHNOLOGY INNOVATION
REAL OPTIONS METHOD CALCULATED WITH
DECISION TREES

REAL OPTION

Management has the option to defer the investment for a period of


time, temporarily suspend operations, change inputs or outputs,
reduce expected profits or reduce expected losses on the investment,
temporarily suspend operations, change inputs or outputs, scale
down or resume operations after a temporary shutdown.
All these opportunities represent options on real assets that allow
management to increase the value of the innovation project, and are
therefore called REAL OPTIONS.

DECISION TREE

Decision trees are tools that allow the use of real options
to project the possible scenarios and factors that are
taken into account to calculate the value of a
technological innovation.
A naïve approach to valuing projects with real options
would be simply to include decision nodes corresponding
to project options into a decision tree model of the project
uncertainties, and to solve the problem using the same
risk-adjusted discount rate appropriate for the project
without options.

PROCESSES RELATED TO THE CALCULATION


OF THE VALUE OF TECHNOLOGY
Step 1: Define the factors that add or detract value to this
technology and give them a weighted value.
Step 2: Define the field of application, and how it influences
the different markets.
Step 3: Build a decision tree estimating the different values
that the project can take.
Step 4: Estimate the value of the project or technological
innovation taking into account all the nodes or interactions
of the tree.

CREATE VALUE

Companies can create value for their technological innovation projects by conducting an investigation of the
impact it may have on the market, the costs of reproducing and applying this technology and the different
actors that will be affected.
Make an estimation of the cost in different scenarios, and use a decision tree tool to estimate each of these to
make an optimal decision.

B Y D A N I E L M O R A L E S 8 0766048
GROUP: 212032_18

CONTEXTO: WWW.SITIOINCREIBLE.MX. V A L U A T I O N A N D N E G OTIATION OF TECHNOLO G Y


APRIL 4 2021

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