The Research On Investment Decision-Making Of Subway PPP Project Based On Real Option

With the advent of the domestic subway construction boom, huge demand for funds for subway construction has caused tremendous pressure on local governments in Twelfth Five-year Plan period. In order to solve the subway project financing problem, the PPP model which is one of the franchise financing model has been introduced in the subway project financing. PPP model refers to the financing of public-private partnership model in which public and private sector are based on the formation of a project in the form of mutual cooperation. PPP model is not only effective solution to the subway project financing problem, but also has brought great opportunities for private investors. Subway PPP project has the following characteristics, such as a huge amount of investment, irreversible, short-term rate of return, risk and so on. When traditional investment decision-making methods evaluate the value of subway project, those methods tend to underestimate the true value of the project because those methods do not take into account the uncertainty of future cash flows of subway project and the flexibility in the project implementation process, and ultimately led investors to make wrong investment decisions. However, real option method has more advantages in the assessment of uncertainty in subway project, the investment management of irreversibility, and capture the flexibility of investment decisions than the traditional investment decision-making methods.In this thesis, the shortage of the traditional investment decision- making method in assessment of the value of Subway PPP project is used as the starting point, then the traditional investment decision-making method has compared with real option method in order to confirmed the feasibility of the use of real options method and establishment the framework of the use of real option method based on analysis of the characteristics of Subway PPP project and its investment. On the basis of analysis the types of real option implicate in subway PPP project, the subway PPP project investment decision-making model is established, and sensitivity analysis is taken to the model. The model indicates that when the true value of the project is less than the optimal investment threshold, investors should choose to wait. Finally, the model is verified through a case study.Real option method considers the influence of uncertain factors to the value of the subway PPP project, it is suitble for managing the investment activities flexible in the market environment and grasping the real value of the subway PPP project accurately so as to provide theoretical guidance to private investors to choose the best investment timing.