Applying the principles of profit sharing in innovative projects

Abstract

The article dwells on the principles of profitable production sharing incre-mented in production sharing agreements, i.e. profitable production sharing with regard to reaching a certain level of internal rate of return (IRR). The article suggests applying these principles to capital-intensive, expensive and high-risk research and development projects, as well as to innovative ones. The conducted analysis reveals that these principles can partially offset the risks of the company (investor) when implementing innovative projects. In addition, a multivariate profit sharing scale has been elaborated which is based on the changes of input parameter points. Both external (oil prices, the USD rate of exchange, etc.) and internal (the success of scientific research, the success of development and introduction, capital and exploitation expenses, innovative products cost, etc.) factors may appear as an input para-meter. The scale implies that the investor's share of profit depends on achieving an internal rate of return of 20% (in this particular example). The use of a multi-variant profit sharing scale will allow the investor to hedge risks and ensure the reliability of achieving the innovative projects planned economic results. A significant advantage of such profit-sharing model is the possible receiving of additional revenue by the state during the periods of relative increase in the value of the input parameter (for example, oil prices). Additional revenue can be received from the very beginning of the project, taking into account the current situation for an innovative project, instead of being built upon the fixed rate of income tax.