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Project Assessment : (Criteria of Evaluation (Economical (Net Present…

- - - - 2nd Principle: take into account all the future cash flows linked to the innovation opportunity.
      - 1st Principle: risky € tomorrow is less valuable than a certain € today.
        
        Future cash flows are discounted each year.
        
        Discount rates reflect the opportunity cost of the mobilised capital.
      - Sources of Attractiveness
        
        It associates a cash value with an opportunity
        
        It allows the consideration of projects with different risk profiles, riskier projects being discounted more heavily
        
        It doesn't involve setting an explicit arbitrary threshold such as a minimum rate of return or a maximum pay-back time
      - Risk-Adjusted Method
        
        Account costs, risks and time to obtain realistic value.
        
        The development that entails a risk is considered by multiplying the payoff with a probability which reflects conclusion of the development process and the generation of sales.
        
        Certain Equivalent
        
        Certain cash flow that a risk-averse investor would be willing to invest in exchange for a risky cash flow.
        
        Adjusts future cash flows generated by the project taking into account their risk through introducing a coefficient �, ranging from 0 to 1.
        
        Stochastic
        
        Consider each component of cash flow as a stochastic variable, with a given distribution of probability, a mean value and a variance. Neutralize the risk in the estimation of the cash flows.
        
        Consider each component of cash flow as a stochastic variable, with a given distribution of probability, a mean value and a variance.
      - Limitations
        
        The definition of cash flows in the long horizon (difficult to determine)
        
        The calculation of the discounted rate