Study On The Option Assessment Of The Income Property Investment Decision

Traditional valuation tools are the major approaches in the investment decisions. But now they couldn't suit the uncertain world, more and more economic problems can not be solved by them because there are some unavoidable defects. For example, traditional valuation tools neglect the choice of investment chance and can't evaluate the flexibility of the projects. So the real option approach that can offset these disadvantages is now applied widely.Though the real option approach is the forefront in current investment decision research field, the system of the real option has not been founded in China. This thesis is trying to apply real option approach in the investment decisions of the income property. The real estate companies buy the lands and choose the best chance to exploit the best product. How to make the decisions, which have characters of the real option under uncertainty, is the matter that developers care about.In the thesis, the real option theory is illustrated systematically firstly. Then the thesis demonstrates the feasibility and necessity of this approach in these decisions. Finally some cases were used to explain how the theory is applied and the conclusion of the thesis is drawn. Based on the academic achievements in the real option theory, decision-makers can evaluate project more correctly and gain more profit, particularly when the projects have many flexibilities. But when we apply the real option to make decisions, we will find that there are some limitations. So the scholars should focus on the research of application, while the decision-makers should consider the real option everywhere. At the same time, taking an options-based approach is not simply a matter of using a new set of valuation equations and models. It requires a new way of framing strategic decisions.