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Discussion Board 7

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Discussion Board 7

1.) What are the advantages and disadvantages of discounted cash flow methods such as NPV and IRR?

The NPV and IRR are measures used by firms to determine what technological projects they will pursue. The qualitative measures they use focus on associating estimated present and future costs with estimated returns to determine if a project will make money. These methods make for solid, mathematical evidence of projected success. How concrete the evidence actually is, is questionable. While the math is solid, the numbers entered into the equation are based only on estimations, and are open to interpretation. Also, qualitative methods are famous for ruling out riskier projects that could otherwise prove valuable to a company's bottom line.

2.) For what kind of development projects might a real options approach be appropriate? For what kind of projects would it be inappropriate?

The real options are based on nonfinancial asset values, and are often apply when a company is developing a new technology, or an innovative project. Because the projects hold an intrinsic value that mere numbers can measure, such as future opportunities that may be created, using NPV or IRR would not be of any value. The real options would be applying less for derived projects as gradual modifications can be determined statistics that already exist.

3.) What are some of the reasons that a firm might use both qualitative and quantitative assessments of a project?

It is important for a firm to incorporate both qualitative and quantitative methods when they can to determine which projects to move forward with. By doing this, a firm can generate a matrix, that compares different values in regards to customer needs, return on investment, and marketing and capabilities.

4.) Identify a particular development project you are familiar with.

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