Valuing the Innovation Potential of New Materials

Abstract

In this paper we address the topic of capital budgeting in highly dynamic and innovative industries, featuring major uncertainties with respect to the future development and acceptance of technologies and end-user products in the market. Focusing on the nanomaterials industry, a model has been developed using empirical data and integrating features of life cycle costing (LCC) and parametric simulation (Monte Carlo). A recursive solution of LCC allows an end-product benchmark costing for the materials, which currently lack commodity market pricing, while the simulation provides a valuation utility for the techno­logy-specific flexibility to switch production. The underlying research offers a broad scope of applications in potentially high-value-added environments.