Analysis Of Corporation Financing And Investing Based On The Option Theory

Raising the fund is the most primitive and basic content in the financial administration. Without capital, the existence and development of the company will become the water without a source. This article will prove corporation financing is very difficult in a situation that the credit system is not really set up through setting up the game model at first. And different capital sources, namely the proportion of corporation share and debt have important influence to corporation benefits. Then, this article proves that corporation share and debt can all possess the option characteristic by introducing the tool of theory of option. Thus it can explain the financing structure of the company to the financial lever from the angle based on call option of company's value. When earning ratio of company' s assets is greater than the cost of corporation debt, the company should expand the scale in debt to increasing value of corporation. On the contrary, the company should expand the scale of stock to raising the real value degree of call option. Is company's financing structure rational? It can be distinguished through the price elasticity based on call option of company's value. Finally, this article points out that the traditional method of net present value has the defect to assessing investment decision of company, also proves that investment of the company has the characteristic of the American call option through introducing the concept of the option of investment and the material object option. The theory can remedy the defect without considering the irreversibility of investing and without considering the characteristic of postponing nature. It offers the basis for correct investment decision.