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An Assessment of the Economic Life of Research Equipment Using Real Option

Sung-Joon Park 1, Deok Joo Lee 1, Kyung-Taek Kim 1, and Whon-hyeon Lee 2
1. Industrial and Management Systems Engineering of Kyung Hee University, Yong-in, Korea
2. Gwangju Center, Korea Basic Science Institute, Gwangju, Korea

Abstract—Recently, as investments in research facilities and equipment have been increasing rapidly, the perception of those investments has been enhanced. Although efforts for systematic construction and efficient management of research equipment are required along with the investments, related studies on the economic life of research equipment are insufficient. The purpose of the present study is to develop economic life analysis models for medium and large sized research equipment in Korea. The real option methodology was used to consider the uncertainty of R&D projects and the models considered the discontinuous advancement of research equipment technologies in finite spans. According to the results of analysis of numerical examples and sensitivity, it could be identified that if the uncertainty of R&D projects is high, the life cycle of research equipment will vary greatly. This indicates that our models are suitable for highly uncertain R&D environments. These models and analysis results seem to be helpful to institutions that need to calculate replacement periods in relation to the deterioration of research equipment.

Index Terms—economic life, research equipment, real option, uncertain, R&D

Cite: Sung-Joon Park, Deok Joo Lee, Kyung-Taek Kim, and Whon-hyeon Lee, "An Assessment of the Economic Life of Research Equipment Using Real Option," Journal of Advanced Management Science, Vol. 3, No. 3, pp. 250-255, September 2015. doi: 10.12720/joams.3.3.250-255
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