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Crossair: the introduction of the differential global positioning system (DGPS)

Author: Loch, Christoph H. ; Van Berkel, Mike ; Sargsyan, GueramINSEAD Area: Technology and Operations ManagementPublisher: Fontainebleau : INSEAD, 1998.Language: EnglishDescription: 13 p.Type of document: INSEAD CaseAbstract: 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?Pedagogical Objectives: Introduce the real options pricing framework applied to the evaluation of RandD projects - Discuss the correct discounting rate for RandD 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
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Introduce the real options pricing framework applied to the evaluation of RandD projects - Discuss the correct discounting rate for RandD 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

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?

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