Financial Evaluation Of Highway Project Based On Real Options

The development of China's highway has attracted worldwide attention. But The investment decision of highway project has stopped in many traditional methods such as net present value and the internal rate of return method based on the discounted cash flow. The method did not consider the uncertainty of future earnings, and flexibility on project management and decision making on also.On the contrary, based on real option evaluation method for the evaluation of project investment elasticity value, just to make up for the lack of the above two aspects. Because the highway investment has very big uncertainty, thus brought the option value, and because of the characteristic of the real option theory itself, a more practical in solve the highway investment.In this paper, the evaluation methods of real options and their comparative advantages are analyzed; considering the characteristics of the highway investment at each stage is different,so the real option theory into the highway project, choose flow volatility as an important parameter of real option model of binary tree. On this basis, in order to YW highway as an example, using the binary tree model to evaluate the option value of the project. Paper through theoretical analysis and verify the following conclusions: At first, traditional value evaluation method on the evaluation system is rigid, tend to underestimate or overestimate the value of the project was, resulting in investors' decision-making errors.But real option introduces uncertainty, do to the further perfect and supplement.The second,traditional value evaluation method without considering the investment in stages, and the real option theory is introduced into delay options, expansion option, abandon option, investment can be divided into several phases, makes the final evaluation of the net present value is closer to the actual project.At last,in real option evaluation model with multiple factors of volatility, as a kind of,have a large impact on the accuracy of the option value, so we in the process of evaluation to correctly calculate the size of the volatility.