Real Option Study On Valuation Of High-Tech Companies

With the development of science and economy, more and more hi-tech companies have been founded. The Discount Cash Flow Model (DCF) has a big fault that it can not resolve the uncertainty problem, and price Intangible Asset effectively. A new creative method that is fit for hi-tech companies characteristics must be found.Through leading Real Option into the Valuation area of hi-tech company, we can adopt the inputs and concepts in financial market to price companies. The value of hi-tech enterprise is including two aspects, one is Tangible Asset value and the other is Intangible Asset value. DCF Model can be use to value Tangible Asset and the Real Option Model can be use to value Intangible Asset. The combination between traditional method and Real Option make the price of hi-tech company more precision.If value leakage exists, a new model is needed. By thinking about the holding profit we can get a partial differential equation, which is fit, for Real Option price. Since the equation has been considered as an American Call Option with paying cash bonus constantly, we can find the solution by utilizing the BW analysis approach method of American Call Option.This paper also applies the method of Real Option in actual problem. We value the license of IPTV from the sides of China Telecom & CNC by using the Black—Scholes Option Pricing Model. By analyzing about the example, we can put Real Option theory into practice, and compare DCF and Real Option method.