Research On Application Of Real Option Approach In Business Valuation

Based on the study of the theory and practice of the real option method, this paper is toimprove the face of the existing real option model from inside and outside two layer, through theform of case analysis to illustrate the real option model in enterprise value assessment applicationprocess and to verify its scientificity and accuracy.With Chinese environmental thermoelectric Co.,shareholder value as the appraisal object, and investment value as the final value types, frominvestors’ point of view, the case is to analyze the interests of the shareholders of Chineseenvironmental thermoelectric Co. Ltd. This case to determine the ultimate shareholder value isdivided into three parts to carry on the analysis. First, the discounted cash flow method is mainlyused to determine the value of the free cash flow of firm. Meanwhile, through analyzing the valueof non-operating assets, surplus assets, debt assets value, to determine shareholder value based onthe simple reproduction. Second, analyze option value of the agreement on gambling involved inthe merger and acquisition case. Third, analyze the expanded option value of the second-expansionproject. The ultimate shareholder value equals to the value of shareholders’ equity minus the optionvalue of the agreement on gambling, plus the expanded option value of two-phase expansion project.Having achieved the organic combination of revenue method and real options method in theevaluation of enterprise value, the case has an important significance to explore enterpriseinvestment value.Finally, this paper puts forward some suggestions on revenue method and realoption method in the evaluation of enterprises, in order to further improve the real option pricingmodel and promote its application in the evaluation of enterprise value.