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dc.contributor.authorKim, Sungchul
dc.contributor.authorGiachetti, Ronald
dc.contributor.authorPark, Sangsung
dc.date.accessioned2019-01-29T23:09:44Z
dc.date.available2019-01-29T23:09:44Z
dc.date.issued2018
dc.identifier.citationKim, Sungchul, Ronald Giachetti, and Sangsung Park. "Real Options Analysis for Acquisition of New Technology: A Case Study of Korea K2 Tank’s Powerpack." Sustainability 10.11 (2018): 3866.en_US
dc.identifier.urihttp://hdl.handle.net/10945/61102
dc.descriptionThe article of record as published may be found at http://dx.doi.org/10.3390/su10113866en_US
dc.description.abstractFor sustainable defense management, it is essential to acquire weapons systems that can adapt to future uncertain threats and, at the same time, to invest efficiently with limited budgets. Economic analysis is used to examine the costs, benefits and uncertainties of alternatives. In particular, the use of the real options valuation, which is one of the methodologies of economic analysis, is expanding. The real options valuation has shown effectiveness across various industries to evaluate investment strategies. In this paper, we apply the real options valuation to the weapon systems development case and confirm its usefulness. Unlike previous studies, the real option valuation methodology is applied retroactively to the finished project, compared to existing research mainly applying real options to value research and development (R&D) without knowing how the project completed. We use the following procedure. (1) Define the uncertainties of the three acquisition alternatives (development, technology adoption, and purchase). (2) Calculate the benefits of the three acquisition alternatives with expected and actual data without uncertainties. (3) Model the decision tree without options and with options. (4) Analyze and compare results with benefit and benefit cost ratio. We analyzed the Korea K2 tank powerpack development case by applying real options. We could see that the real options could have reduced the risk of losses when the development risk is high and market uncertainty exists. From the case study of the development of the powerpack, we learned the following three lessons. First, we reaffirmed the importance of objective value analysis in project decision making. Second, we need to analyze the project value continuously and revise the acquisition strategy accordingly. Third, the effectiveness of the real options valuation was confirmed for sustainable defense management. In addition, the real option analysis data acquired from similar finished projects can be useful for establishing a new product acquisition strategy and, at every decision-making phase, the real option evaluation should be continuously performed with updated information. In this paper, we first perform real option valuation of finished weapon systems in the Korean defense field. This paper is valuable in establishing a rational methodology for applying economic analysis to weapon system acquisition projects.en_US
dc.description.sponsorshipEngineering and Scientist Exchange Program (ESEP)en_US
dc.format.extent18 p.en_US
dc.publisherMDPIen_US
dc.rightsThis publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.en_US
dc.titleReal Options Analysis for Acquisition of New Technology: A Case Study of Korea K2 Tank's Powerpacken_US
dc.typeArticleen_US
dc.contributor.corporateNaval Postgraduate School (U.S.)en_US
dc.contributor.departmentSystems Engineering (SE)en_US
dc.subject.authorsustainable defense managementen_US
dc.subject.authorreal optionsen_US
dc.subject.authordiscounted cash flowen_US
dc.subject.authornet present valueen_US
dc.subject.authorbenefit valuationen_US
dc.subject.authorK2 tanken_US
dc.subject.authorpowerpacken_US


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