Evaluation of technological innovations of a company by the methods of chain repeat and equivalent annuity

Abstract

When assessing technological innovation, one cannot rely on any one method of analysis. Based on the investor’s goals and the planning horizon, each specific method carries some additional information about the effectiveness of investment chains. In order to make the most optimal decision about replicating technological innovation projects, it is necessary to take into account the specific features of operation of a particular new equipment, in particular concerning the planned lifetime. Among the many approaches used to solve this problem, the chain repeat method and the method of equivalent annuities are the most popular among financiers. In this case, often a preference is given to the method of equivalent annuities as the most simple for calculations. Despite the fundamental differences between the method of chain repeat and the method of equivalent annuities, they allow one to obtain the same result for investment chains that have terms that are multiples of the investor-planning horizon. If this condition is violated, then the problem of choosing the most profitable chain of technological innovations is considerably complicated. This factor can significantly affect the correctness of the final decision of the company. Therefore, in the example considered, if we were guided only by the results of the equivalent annuity method, we would get an incorrect conclusion about the optimal chain of technological innovations of the company.