Application Research Of Real Option Evaluation Method

This article mainly aims at the deficiency of traditional project evaluation method for more uncertainties in the evaluation of investment projects, leads to the project evaluation method based on the Real option, the method is designed to solve the investment of corporate long-term physical assets under uncertainties. Although the traditional project investment evaluation method provides a quantitative basis for assessing the value of the project, but the dominant ideas of the traditional project evaluation method is discounted cash flow, ignores the objective existence of many uncertainties in the business investment process, however the investment options caused by the uncertainties is valuable in the Real option theory. The traditional methods ignore this part of value, will lead to underestimate the true value of the investment. Because of the large deviation in predicted results of the traditional evaluation methods with the actual existence, the Real option investment evaluation method came into being, the method makes up the inadequacies of the traditional project evaluation based on the discounted cash flow in the strategic investment decisions. In the application, the Real option evaluation method is converted from theoretical study to large-scale practical application in abroad, still stop at the phase of theoretical research and application of the results is less in domestic. The aim of this thesis research to take the a strategic investment of a steel company as example, use the theory of Real option evaluation method to calculate the investment, the evaluation method is more scientific and accurate than the traditional evaluation methods under more uncertainties in strategic investment.Based on the theory of Real option researched by domestic and foreign scholars. This article introduces the concept of Real option, background, stage of development, the trend of development and the application of the theory at home and abroad. Through the case of strategic investment projects in a steel company, it applies the pricing model of Real option to calculate the true value of the company’s investment projects, and compare the calculation results with traditional project evaluation method, come to the conclusion that because the greater the uncertainty, the greater the option, the greater the opportunity to use the option, the greater the value of the option is. Thus, it is proved that it is scientific and accurate to use the Real option evaluation method when the enterprises make strategic investments under more uncertainty in the environment. Then it is proved that the Real option evaluation method much better to explain the investing behavior of corporate under an uncertain environment than the traditional financial evaluation methods.