The Application Of The Binary Tree Option Pricing Model In The Valuation Of Listed Companies In The Media Industry

Merger and Acquisition is the eternal topic of capital markets.In recent years,with the continuous improvement of China's capital market,mergers and acquisitions of listed companies were in full swing.However,merger and acquisition did not always have a synergistic effect.In many cases,it became the chief culprit in the awful performance of listed companies.The main reason was the risk of impairment of goodwill brought by target company's awful performance after merger and acquisition.The high premium in valuing target company often played a role in fueling.Therefore,it is very important to get a reasonable valuation of target company.This article mainly studied the valuation of target company in the M&A of listed companies in the media industry.After comparing the advantages and disadvantages of the traditional valuation method and the real option method,the paper chose the case that Blue Focus bought Bojie Advertisement,used the Binomial Tree Model to evaluate Bojie's enterprise value,compared the valuation result with what was assessed by asset appraisal institution using the income approach,and finally verified the rationality of adopting the Binomial Tree model according to the M&A performance.After comparing the traditional valuation method with real option method,it was found that each of the three traditional valuation methods had its own advantages and disadvantages,and also had its own applicability.The real option method had obvious advantages over the traditional valuation method because the real option method took into account the uncertainty of the business process and operational flexibility.TheBinary Tree model,which was based on the assumption of discrete-time state and applied to both European and American options,was more suitable than the B-S model for evaluating the value of target companies in mergers and acquisitions.By comparing the valuation result of the Binary Tree model and the valuation result of the revenue approach,it was found that the valuation result of the Binary Tree model was lower than the valuation result of the revenue approach,which was mainly because the Binary Tree model took into account the uncertainty of the business process and operational flexibility.The income approach assumed that operating income was incremental over the forecast period,while the Binary Tree model assumed that there were both upside and downside operating revenue.In addition,the Binary Tree model also considered the value of giving up options.Through the analysis of the M&A performance,it was found that the performance of Blue Focus after the M&A was not good.The main reason was that the value of impairment of goodwill and intangible assets of Bojie were large,and the analysis of the reasons of impairment of goodwill and intangible assets confirmed the existence of uncertainty in business operation.Therefore,it is more reasonable to use the Binary Tree model to estimate Bojie's enterprise value.