How should management proceed? How, and what calculations, can capital budgeting be used?

13 Real Options and Copital Budgeting IWish I Had a Crystal Ball Richard Ponting could feel the pressure as he walked into the executive boardroom with his briefcase containing the data and slides pertaining to his latest proposal. The last couple of ycars had not been very good for him. Two of the projects that he had recommended for investment ended up having to be abandoned, and one that he had turned down ended up being a winner for one of the firm's main competitors. Richard knew that this was going to be a long mecting. Richard, the product devclopment manager for Advanced Pharmaceuti- cals, had joined the firm about seven years ago. With a bachelor's degree in chemistry and an MBA in finance from a nationally recognized university, Richard had been fairly successful ia his professional career. Prior to working at Advanced Pharmaceuticals, Richard had been responsible for launching three highly successful drugs at another mid-sized pharmaceutical company It didn't take long for the headhunters to find him, and shortly thereafter Advanced Pharmaceuticals made him an offer that was too good to refuse At Advanced, however, his track record was not as good. Thnee of his last five recommendations had cost the company some serious money and Richard knew that this time his job was on the line. He remembered how last night as he was putting the finishing touches to his presentation he kept saying to himself, "I wish I had a crystalba" Advanced Pharmaceuticals, headquartered in Decrfield Beach, Florida, was a fairly large pharmaceutical company that had a number of patented 53