Studies Of Strategic Investment Based On The Theory Of Options

The actual investment environment which enterprises face with has changed deeply. The traditional evaluation methods have some limitations, which makes this method helpless when dealing with these changes. The real options analysis method is the right medicament for symptoms existing in the traditional methods. Because real options method has to consider the impact of uncertainty on underlying assets value, which breaks through the limits and manacles of the traditional evaluate techniques, adapting well the new investment decision environment characterized by uncertainty and risk, and offering a revolutionary solution to quantifying the operating flexibility and strategic adaptability. So real options theory provide a revolutionary tool for strategic investment decision.The dissertation divides into two parts.Part One begins with the introduction of real options, which makes a comprehensive research on the significance, characteristics, theory basis, essence, applying scope and qualification methods including Binomial Model and Black-Scholes Model. Because of options characteristics of strategic investment decision, traditional evaluation methods cannot properly account for the value of the project. Then the paper brings up a plan to take into account the varieties of invest opportunity's value containing in a project by applying the idea of option, and extend the traditional NPV rules by adding the value of options to the NPV formula. And a real options framework of strategic investment decision is originally presented.Part Two is the main segment of the dissertation and the difficulty of the study. After proceeding to a case analysis of a material enterprise introducing PVC product line,real options models and traditional evaluation methods are applying into this investment decision which distinctly manifest the advantage of the front. Combining with this material enterprise which takes full account of the flexibilities'value, the paper analyzes magnitudes of real options implicating in the strategic investment decision, and assesses different real options value resulting from changing several parameters by option-pricing model and EXCEL. From this case, real options method can offer policymakers larger decision space in enacting investment project, and appraises the strategic investment decision more overall and more rationally.This research provides a suit of new academic framework and practical tool, which gives important theoretical meanings and practical value for strategic investment and management.