R&D investment valuation in growth option under incomplete information

A lot of previous studies have manifested that the investment of research and development (R&D) can be evaluated by growth option approach. The growth option as well as the R&D investment, has three significant characteristics: the uncertainty of project value, the uncertainty of investment cost and information cost. The main contribution of this paper was constructing a more general model to evaluate R&D investment considering the three characteristics simultaneously. Sensitivity analyses were also presented to separately illustrate the dynamic relationships between the growth option value and the project value, the growth option value and investment cost, and the growth option value and information cost. Hopefully, the purpose of this study is providing another alternative for managers to help them evaluate R&D investment better.