Research On Enterprise Valuation On The Basis Of Real Option

China’s Economy has been considerably changing since Reform and Open-up Policy in terms of both marketisation and internalization. Transnational capital smoothly flow in and out, price Mechanism responds to supply and demand fast like never before and international transactions and collaborations frequently take place all around the world. Phenomena of all those kinds require pricing guidance directly or indirectly based on Enterprise Valuation, which will definitely plays a more significant role in China’s Economy along with valuation legislation pacing up. Therefore, the approaches of calculating enterprise value is turning into core issue in market efficiency and lasting research topic in the realm of valuation and pricing. To such great extent the mainstream methods of valuation such as Cost method, Income method and Market method depends on the prediction accuracy of future information that they’re likely to be infeasible and fragile under uncertain circumstances. In order to confront uncertainty and turn around aforementioned situation, this paper combined the multistage cash flow discount model and real option valuation to capture managerial flexibilities which comes from those special projects. The part of recurring cash flow is most likely and suitable to be evaluated by cash flow discount model while the other part of managerial flexibilities is modeled by real option valuation and priced by option pricing methods.In case analysis, Shanghai Tianwei pharmaceutical company listed in Shanghai Exchange was chosen to prove valuation model’s feasibility and rationality. As 2012 the base year, the future financial data was projected by recent few years’ financial sheets. On the other hand, after the analysis of enterprise value forming process, several projects including an R&D and a new product line investment are considerably likely to form real options. Therefore, the analysis built up real option models to capture those values base on a brand-new logical structure. Ultimately the case research shows the fitness between intrinsic value and appraisal value has improved significantly after real option was introduced, and a certain extent of uncertainty has been transformed into enterprise value, which couldn’t be done with traditional valuation methods.