| Evaluation refers to assessing something with some theory, which is of great importance in today’s market economy. For projects to be started, if the investors could understand the value of the projects to some extent, then they would make a better decision on whether to invest or not.In view of the significance of evaluation, it has been a research direction for finance. Nowadays, the discounted cash flow method is a recognized mainstream in academic circles, whose main theory is predicting the future cash flows of a company or project, discounting the cash flows with a reasonable discount rate, and then obtaining the value of the company or project. The discounted cash flow method is welcomed by investors because it puts emphasis on the future income of a company or project. Long-term practice has shown that it is satisfactory to evaluate a company, which is mature and operating smoothly, by the discounted cash flow method. However, this method has a weakness that it is a static evaluation method, which can’t be neglected. It is based on that assumption that the investment is reversible. But in fact, the investment is not reversible. Once investors invest their capital, they cannot recover the capital at the same amount, and in the meantime, they receive an opportunity to avoid the investment that is not reversible, which is option. Under the drive of this theory, a new research frontier — real option has come out in academic circles, which is a way for evaluation with many kinds of finance knowledge combined. Real option makes use of option pricing models to evaluate the option in the investment of the real economy, which effectively makes up for the weakness of the discounted cash flow method and starts a brand-new field for evaluation.Based on the real option theory, this essay tries to use timing option to analyze the value of the DME project of A company. The essay is made up of five parts. The first part is Introduction, which mainly introduces the purpose and meaning of the research, previous research results, the research content and method, and innovation points. The second part is Project Evaluation Theory, which makes a main introduction of traditional evaluation methods, such as the net present value and internal rate of return, and explains the option theory and real option theory. The third part is the Evaluation of the DME Project of A Company Based on the Net Present Value. This part begins with various economic technological indices, by which the investment cost is ascertained. Then with the finance forecast, the future cash flows are figured out. And at last the net present value of the project is calculated, with which the conclusion whether the project is feasible is drawn. The fourth part is the Evaluation of the DME Project of A Company Based on the Real Option Theory, which uses timing option to evaluate the option of the project and draws the conclusion. The fifth part is Conclusion, which introduces the conclusion of the essay.Because the real option theory only has a short-term history in China, its application in evaluation is rare. It is hoped that this essay can offer people in evaluation field a new idea and make contributions to the hard and tiring work of evaluation. |
