Real Option and Its Application in the Value Evaluation

Value of the business is the basis for enterprise in transaction pricing. In the development process,enterprises will face many investment opportunities or choices. These investment opportunities or choices are valuable. However,the traditional business valuation methods consider only the present value of corporation assets and the present value of future benefits,while ignoring the optimal timing of future investment choice. Real option is a precisely useful supplement to the traditional assessment methods. In this paper,we will illustrate how to use real option model to do business evaluation,base on the application analysis of typical calculation model of real option. This is a new idea for the enterprises.