Application Of Real Options In Corporate Investment Decision

The core driving force for the rapid development of the world in the economy,commodity and technology market is technological progress and technological innovation.Innovation is also the key to Schneider’s growth over the past 100 years.The research and development of new products and high-end technology(Research and Development,R&D)is the core content of technological innovation,which has made a significant contribution to the development of modern world economy.New and high-end technology research and development(R&D)is the most important component of the implementation of the company’s target strategy,so the reasonable evaluation of R&D investment is very critical.Schneider electric group,as the world leader in the field of energy optimization,has been in the leading position of technology,always put new products in the enterprise development strategy in the primary position.Schneider has a special process of New Product Introduction(NPI),including the identification and selection of opportunities,the concept of the proposed project evaluation,development,production and market introduction.The economic feasibility evaluation of Schneider’s new product introduction project is carried out by the business investment department.In the evaluation process,the business department estimates the internal interest rate,the dynamic recovery rate and the net present value of the enterprise,and makes a specific sensitivity study,analysis of the balance point of investment income and loss,etc.Enterprise new product promotion project value evaluation is to take DCF(Discounted cash flow)way to explore.The DCF method is divided into net present value method(NPV method)and internal rate of return method.DCF assumes that each method in the study of annual cash flow and cash rate,but the inherent DCF(discounted cash flow)research has limitations in the internal method,cannot predict the promotion of new projects of uncertainty under the conditions of market value.The new product introduction project in the electrical equipment industry has the characteristics of high risk and high uncertainty.Many data have explained the feasibility and advantages of the real option method in the evaluation of new product introduction project.In the actual operation of the company,it faces the complicated option pricing equation,but does not know how to solve it.To resolve this problem,this article gives the real option method and net present value method of the combination of architecture model and treatment focus highlights the feasibility and practicability,the use of real options method so as to assist the enterprise managers to facilitate processing of practical problems.Through the research of this article theory and practice,the real option method to option oriented to a new investment project evaluation on the basis of reasonable,the value of investment project evaluation more scientific,and help enterprises to make accurate investment decisions.