A Study On Investment Decision-Making Of Smart Gas Meter Project Of F Company Based On Real Option Method

According to the "2019 China Energy and Chemical Industry Development Report" issued by the Sinopec Institute of Economics and Technology,China has become a large consumer of natural gas.The gas meter market continues to expand.It is estimated that by 2022,the sales of gas meters will reach about 60 million units,of which the sales of Io T smart gas meters will reach about 14 million units.Increasing and rapidly investing in smart gas meter projects is an important means for companies to expand their markets and revenues.It is of great significance for companies to evaluate the value of smart gas meter development projects and time the investment.The investment in smart gas meter projects involve a large capital and a long window for return on investment and are typically irrevocable and uncertain.How to make an optimal investment decision based on a systematic assessment of the value of the project becomes one of the key research areas in this field.In the process of project valuation some professional service agencies and enterprises still follow the traditional NPV valuation method,which may cause the project value to be underestimated and then affect the enthusiasm of enterprises to invest in the smart gas meter industry.This article discusses theoretically that the real option method can make up for the shortcomings of the NPV method in the valuation of projects with obvious uncertainties,which aims to support decision-making in investing in smart gas projects.This article first summarizes the relevant research literature on the application of real options methods in the field of project investment by domestic and foreign scholars,and introduces the basic concepts of the NPV method and the real option method.Secondly,it summarizes and analyzes the overall development and investment profile of the smart gas meter industry,and establishes the basic characteristics of smart meter project investment,namely uncertainty,flexibility,and irrevocability.Then it compares the traditional project evaluation theory with the real option method,and provides the B-S model and Geske model suitable for the evaluation with reference to the characteristics of the smart gas meter project.Finally,based on the real-world data of company F’s smart gas meter project,this article uses the case study to set the key parameters of the project investment in the option model,including the present value of investment income,the option exercise period,investment cost,the underlying asset volatility,and risk-free interest rate,etc.,provides an in-depth analysis of asset volatility and sorts out the parameter-based calculation method.Lastly,this paper compares the valuation results under the real option method and the net present value method,and concludes that the real option method is of significant value in that it can help companies identify opportunities in a timely manner,make sound investment decisions,reduce investment risks,and maximize the value.In summary,the real option method can help support investment decision-making by effectively evaluating projects with uncertainties based on an objective and accurate assessment on the actual value of the project.It provides a new framework for traditional gas meter companies and industries new to the smart gas investment,and provides theoretical support for strategic decision-making for industry authorities and enterprises to invest in smart gas meter projects.