Financial analysis extends management of R&D

Research, development and acquisition (RDA) investments are susceptible to strategic financial analyses. RDA can be thought of as parts of a portfolio in which preserving some research will increase return per unit of risk. Specific optimum proportions of research versus development are calculated for realistic parameter values. In addition, the best mix of RDA is sensitive to changes in the cost of capital, as illustrated by U.S. Navy RDA expenditures over the past two decades. Finally, real options implicit in RDA are made explicit so that the value of options can be considered when making RDA decisions. Corporate financial analysis provides a framework for strategic RDA decisions.