Generally speaking, the investment payback period of engineering projects is long, which contains many uncertain factors. Therefore, in order to ensure the expected return of investment expenditure, enterprises and related units introduce option theory as guidance and reference, which can effectively assist investment decision makers to make correct judgments. What this paper is going to discuss is one kind of real option & the application of deferred option in project investment decision. The author briefly expounds the concept of deferred option and analyzes its specific application.
With the gradual deepening of China's socialist market economy and the increasingly fierce market competition, the investment decision-making of enterprises has become more difficult, and the traditional investment decision-making methods are no longer applicable because of the changes in the decision-making environment. Under the current situation, decision-making is becoming more and more dynamic, and the focus of decision-making is gradually shifting to strategic decision-making. Therefore, the real option theory fits the development of the current investment situation to a great extent, changes the traditional decision-making methods, makes investment decision-making more flexible, gives decision-makers more choices and avoids risks in time.
I. Overview of deferred options
As one of the categories of options, the underlying securities of real options are neither stocks nor futures, but some physical commodities, such as bonds, commodities and currencies. Through real options, management decision makers can make relevant investment decisions under uncertain conditions, and the value of options increases with the increase of uncertain conditions. Real options are uncertain, flexible and irreversible. DeferOption is a kind of real option, which means that the company doesn't need to execute some projects immediately, but waits to get some market, cost, price and other information, thus developing options waiting to accept new information. Deferred options provide companies with the right to choose the investment time of projects, especially when the market environment is not optimistic, decision makers can choose to postpone investment. But in the actual investment process, waiting has a certain cost. In this process, the company needs to give up the early cash flow of the project, which is likely to lose the preemptive advantage because competitors enter the market. Therefore, when investing, we must fully consider the value brought by deferred options. The greater the uncertainty of future investment, the higher the value of waiting options.
Second, the deferred option in the project investment decision
(A) Analysis of the characteristics of deferred options for engineering investment
Generally speaking, the investment decision of engineering projects also has three characteristics: uncertainty, flexibility and irreversibility, which are the same as the typical characteristics of real options. Therefore, it is feasible to apply real options to project investment. By delaying options, decision makers can invest in the project at the most appropriate time to ensure the maximum return on investment. Through this delay time, the decision-maker can get the value of the corresponding waiting option. In the actual project investment and development process, decision makers can usually make adjustments according to market changes in the early stage of the project. For some projects with many uncertain factors, we can choose to delay investment to determine the best investment time and obtain the greatest economic benefits. Leasing or signing a put option contract is an effective way to construct a delayed investment option.
Taking the water conservancy project as an example, there are a lot of uncertain factors in the investment of water conservancy project, which will not only change the operation and construction cost of the project, but also affect the fluctuation of future cash flow and project value. However, the increase of these fluctuations correspondingly affects the accuracy of decision makers' prediction of water conservancy projects, making it difficult for them to make correct judgments and decisions. In this case, the delayed investment provides more opportunities for decision makers to obtain useful information, so that decision makers can fully understand more information of the project during the delayed waiting period and modify the content of the project according to this information. At the same time, they can also make corresponding risk avoidance plans according to the information they have obtained, and then invest after the waiting period is over. It can be seen that deferred options provide investors with opportunities to avoid risks, but also retain their opportunities for future profits.
(B) Construction of deferred option model for engineering investment
In the construction of an engineering investment model, when the value of delayed waiting is far greater than the cost lost in this process, we can consider establishing an engineering investment decision-making model based on delayed options. Or take the deferred investment option of water conservancy project as an example: 1. Assumption of engineering model First of all, suppose that in this water conservancy project, the decision-makers only consider the upfront investment for the time being, and assume that there are no other types of real options in this process, only deferred options are considered.
Therefore, in addition to calculating the capital cost and expected value of spot investment, we should also calculate the cost of deferred options and the actual investment cost after the term expires. Secondly, it is assumed that the influencing factors of the whole water conservancy project value include technical improvement, uncertain risk and policy change, and the project value is regarded as a dynamic risk variable. In the actual calculation process, the continuous-time dynamic change curve is introduced into the project investment decision.
2. Value Composition of Engineering Investment Projects Ignoring Competitive Factors When calculating the profits of engineering investment projects, the influencing factors usually include endogenous variables and exogenous variables. The former refers to the variables that can be controlled by the invested enterprise itself, such as management costs. Generally speaking, these variables usually don't fluctuate too much. Therefore, when calculating the intrinsic value of engineering investment, the upfront flow and investment cost obtained from investment projects are considered, which is called embedded net present value. Exogenous variables refer to factors such as technical improvement of water conservancy projects. When the decision-maker gains some income because of delaying investment, this part of income is the value of deferred option. Therefore, the total value of this water conservancy investment project is the sum of its embedded net present value and deferred option value.
3. Construction of deferred option model for engineering investment decision 1) If the expected cost of investment by decision makers is w, the expected return of investment at time t is VT-W..2) If decision makers choose to wait at this time, then waiting must be more valuable than investment at time t, because there are many uncertain factors in this process. Therefore, measuring the value of these uncertainties 3) in T? During the time period, the item value v changes from Vt to Vt+V? And assuming that the project value v obeys Ito process, the formula can be expanded and solved by Ito Lemma: 4) Solve the above differential equation according to the critical condition, and calculate the value obtained by the investment decision of water conservancy project.
Generally speaking, the investment decision-making value when deferred options are considered will be higher than the decision-making critical value when cost is simply considered, and the higher value is the option value of deferred investment. 5) Calculate and analyze the critical value V* of investment, and it can be concluded that when *VVt? , should choose to invest immediately, when vt
Third, the actual case analysis
Installed capacity of a hydropower station in Chongqing 1600MW. Under the condition of ensuring the output of 3 100 MW, the average power generation is expected to reach 3.92 billion kW. H, the power generation department of water conservancy project now intends to introduce investors from outside the government department, assuming that venture capitalists of an enterprise are interested in investing. It is known that the total investment of this project is 65.438+0.27 billion yuan, and the static total investment of the power generation department is 874,000 yuan. It is also known that the construction period of this project is 3 years, and the power generation production period is 654.38+02 years.
Therefore, before investing, investment decision makers make statistical analysis on the total power generation, regional power supply demand and regional distribution of power supply, and predict the annual cash flow of power generation departments in the project. When the income tax rate of water conservancy projects is 15% and the discount rate i0 is 12%, the financial net present value can be calculated to be 8.299 billion yuan. At this point, investors can calculate and analyze the value of whether they have deferred investment options according to the actual situation. Then we can get the result. When using deferred investment options, investors can fully upgrade their technicians and related equipment during the waiting period to deal with some potential problems. After the delay period, the predicted value of the project will be greatly improved.
Conclusion:
Deferred option provides an effective reference for project investment decision-making, avoids the economic losses caused by blind investment by decision makers, maximizes the project benefits to a great extent, and adds more flexibility to the work of decision makers.
The application of the above deferred options in project investment decision-making is the content of Zhong Da Consulting.
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