The Evaluation Research On Urban Rail Transit Finance Lease Project Based On Real Options

ABSTRACT:In recent years, with the development of China’s urbanization, the investments have increased on transportation infrastructure especially in urban rail transit construction. The long cycle and high operating costs have resulted in serious shortage of funds on urban rail transit project. Finance leases have been matured in the development of transportation equipments in developed countries. And it can connect the potential investors, overcapacity manufacturers of transportation equipment with the enterprises better and form a win-win benefits and risks of the economic structure.A scientific and effective evaluation method is essential to use this finance lease in the broad field of urban rail transportation equipment. Urban rail transit finance lease have the characteristics of asset specificity, uncertainty and so on. Real options approach is better for this.This paper focuses on the feasibility and necessity of finance leases of urban rail transit, and evaluates it with the method of real options model. First, it describes the current development of it in detail, and compares the economic costs of urban rail transportation finance leases and bank loans through an example. Empirical analysis shows that, even if the lease rate is higher than bank lending rates, but leasing is still better than the economic benefits of bank loans because of the accelerated depreciation of tax credited function within certain limits. Then this paper combines the economy and investment characteristics of urban rail transit to identify its option types and reveal the true value of finance lease in it through analysis.Real options, considering the fluctuations of the value of finance lease because of a variety of uncertainties, can be used to investment activities which need flexibility management in fluctuated market environment. So, the introduction of real options approach in urban rail transit project finance leases has a certain theoretical and practical significance for the investors to know the true value of the items.