The Research Of Corporate Investment Decisions Based On Real Options Method

In the economic activity, there is no more common phenomenon thanuncertainty, so it is very critical to evaluate and utilize this kind of uncertainty inthe enterprise investment decision-making. The traditional method of investmentdecision-making ignores the value of the uncertainty, while the real optionsdeveloped in recent years can better assess the value of the investmentopportunities under uncertainty.The status and achievements of real options are reviewed firstly, and thecharacteristics of enterprise investment are analyzed. Then the model of the realoptions for enterprise investment decision-making under uncertainty isconstructed according to financial options. The specific method is, first of all,combining the "twin securities" whose risk character is the same with theenterprise investment project that needed to be valued with risk-free bonds andgetting the income characteristics of the real options, then solving the equationabout the real options of the investment project and getting the model of realoptions. In addition to the influence that the volatility of the value of enterpriseinvestment project, the cost of investment project because of delays and therisk-free interest rate make on the value of real options and investmentopportunities, also to the influence that the market structure on both of them.The study shows that the value of the real options of the investment project andthe opportunity of the project investment are positive to the volatility of thevalue of enterprise investment project, the risk-free interest rate and the marketcompetitiveness, while they are negative to the cost of investment projectbecause of delays.In order to verify the applicability of the model, we selected fiverepresentative industries to study their influences of volatility of the value of theinvestment project, the cost of investment project because of delays, the marketstructure and the risk-free interest rate on decisions of enterprise investmentdecisions. The study shows that the greater the volatility of the value of theinvestment project is, the smaller the cost of investment project because of delays is, the more competitive market is, then the more positive the enterprisewants to invest, while the influence that the risk-free interest rate makes on theenterprise investment decisions is not significant. The explanation is that theinterest rate is not fully market-oriented in our country now.The main work of this paper is to construct a model of real options ofenterprise investment decisions, to analyze factors which affect the value of realoptions and the opportunity of investment and to test the applicability of themodel of real options in enterprise investment decisions in our country, whichcan provide some value of reference for the theoretical study and the practice ofinvestment.