A Study On Investment Valuation Theory And Implementing Approach Of Special Real Assets Under Uncertainty

This paper provides a systematic treatment of a new theory and implement approach of special real assets capital investment valuation of firms under uncertainty. The new theory and implement approach stresses special real assets capital investment valuation share five important characteristics in varying degrees. First, the investment is partially or completely irreversible. In other words, the initial cost of investment is at least partially sunk; you cannot recover it all should you change your mind. Second, there is uncertainty over the future rewards from the investment. The best you can do is to assess the how many scenarios of the outcomes for your venture. Third, you have some leeway about the timing of your investment. You can postpone action to get more information (but never, of course, complete certainty) about the future. Fourthly, the investment decision is not an independent event. Other firms will respond to your investment decision and it will affect your future cash flow. Fiftly,the choice of investment strategy and the result of investment valuation is relativity of levels of uncertainty environment. The orthodox theory of special real assets capital investment valuation is based on the method of DCF. The orthodox theory of investment valuation has not recognized the important qualitative and quantitative implications of the interaction between irreversibility, uncertainty, the choice of timing and rivalrousness. These five characteristics interact to determine the optimal valuation decisions of investors. This is the focus of this paper. More and more scholars and practical managers realize that Discounted Cash Flow (DCF) is not sure of flexibility, rivalrousness in management process and strategic value of decision activity, thereby failing to imply it. This study effectually integrates with these five characteristics of the special real assets capital investment valuation by presenting theoretic framework of based on contextual rationality and approach of contextual analysis, thus proving orthodox theory systematically. There are some main dedications of this study as following: (1) Builds an analytic framework based on contextual rationality and incorporates orthodox theory (DCF or NPV), modern real assets option, risk adjusting value by presenting this paper and Game Theory and behavioral finance analytic thought into a unified analysis framework. The analytic framework based on contextual rationality and contextual analytic method can value special real assets capital investment valuation of firms under uncertainty to a nicety. (2) Classifies the uncertainty environment scientifically, and provides standardized framework of theory. (3) Presents the valued strategys based on contextual analysis topology's framework under uncertainty, and especially provide an adjustment approach of risk valuation under great uncertainty. (4) Revises some main trend of investment decision models by applying the Real assets options, Game Theory and ideas of Behavioral Finance in order to make these models be more scientific and confirm with decision practice of firms. (5) Economically explain the real assets capital investment of firms, and substantiate the theoretical structure of real assets capital investment. (6) Set up a new mode of thinking that connects real assets capital investment evaluation with substitution choice provided by financial market to ensure accuracy of real assets capital evaluation. At the end of the paper, the main conclusions are summarized and the prospect of the research is given.