Value Maximizing Hurdle Rates for R&D Investment

We show that the value maximizing hurdle rate for Ramp;D is less than for conventional investment despite the fact that Ramp;D has development risk. Because development risk arises only during Ramp;D, entrepreneurs control this risk by pursuing or deferring Ramp;D. This risk management moderates downside loss and encourages upside gain. Better upside potential increases the value attraction of Ramp;D and decreases the value maximizing hurdle rate below that of conventional investment