The Research Of Enterprise Valuation Based On Real Option Theory And The Application In Forestry Company

With increasing development and innovation of enterprises, the value categories of companies have dramatically changed, which promotes the improvements of enterprise valuation theories. Nowadays, the ideology of assets evaluation is no longer restricted by the valuation of historical reports compared companies and expected discount cash flows. However, it gradually focuses on the options value that the real assets and projects of the companies have. The options that target on some real assets are called real options. We apply real options theory to the valuation of real assets because it perfectly shows the expected value of a company with uncertainties. With the development of real-options theory, it has been gradually implemented into the valuation of enterprises. So this paper mainly applies real options theory and capital budget theory into the evaluation of a listed forestry company, and we also analyze the critical factors that drastically affect the company’s value.This paper is divided into six parts to investigate the application of real options theory into the valuation of enterprise. The first chapter is about the research background, literature review and introduction of technical methodologies. This part mainly focuses on literature review and organizes the research outlines. In the second chapter, it concentrates on the theory of enterprise value and evaluation methods, which provides abundant theory foundations. Next chapter primarily introduces the development of real options theory and the pricing model of real-options. It also applies two models into real case study and compares their merits and defects. In the fourth chapter, we briefly analyze the feasibility of the implementation of real options theory into the valuation of forestry companies. By studying the real options value of forestry companies, we formulate the real option model for the forestry companies’evaluation. We also thoroughly analyze the parameters in this model and introduce the procedure methods. In the next part, we apply the previous real option pricing model to evaluate a listed forest company and make sensitivity analysis to find out which parameters affect the company’s value most. In the last chapter, we make some conclusion about the usage of real option theory and sum up the innovation and shortcomings of this paper. By doing this research, we hope that we could provide a brand new thought into the valuation of forest companies, and promote the application of real-options pricing method into forest enterprises’ evaluation.