The Analysis of Real Option for Scale Flexibility with Black & Scholes Model - A Case Study of University Dormitory

• Main Authors: Yu-min Lin, 林鈺旻
• Other Authors: Borliang Chen
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/76214517575573118570

碩士 === 國立聯合大學 === 土木與防災工程學系碩士班 === 98 === BOT approach is a well developed mechanism for promoting infrastructure projects in international. Project agents will set the production capacity and project time of the projects in advance. These settings on project conditions have great influence on the value and the profitability of the projects. The project agent, in general, only considers the agent’s economical benefit instead of considering the market risks and the project risks for the projects, which may lead to the shortage of revenue and may cause the reduction of project value. Hence, Investors have to bear on too much project risks in executing the projects. This study will introduce the real option approach on BOT projects to reduce the project risk and to enhance the investors’ benefit, and helpfully to improve the projects’ financial feasibility. There are some differences in investing the conventional BOT projects and other projects. While investing other projects, the investors could change the project scale of the projects in associate with the market conditions. But, it is unchangeable for project scale in investing BOT projects by the conditions of contracts. Due to the lack of managerial flexibility, the BOT projects could become unprofitable or even loss. In case, project agent could release the managerial flexibility in operation phase, such as project scale, product types, and product quality level, and allow the project company to adjust project itself accordingly to the market conditions. That will definitely improve the profitability of the projects, reduce the probability of bankruptcy, and increase the project value. A project finance evaluation model (PFEM) is used as a basic model for financial analysis of the projects. This model is basically a discount cash flow (DCF) model, which could be used to calculate 8 profitability indices for projects’ financial feasibility analysis. These 8 indices are net present value (NPV), internal rate of return (IRR), debt service coverage ratio (DSCR), times interest earned (TIE), return on asset (ROA), return on equity (ROE), self liquidated ratio (SLR), and payback period (PB). In additions, the sensitivity analysis and Monte-Carlo simulation are conducted for determining the expected value and variance of NPV. Finally, the Black-Sholes model is used to estimate the option values of BOT projects in considering the managerial flexibility. A dormitory project in National United University is adopted as a case in empirical study. Multi-phase option for construction is considered. At very beginning, investors only invest 50% of beds required. After completion of the project, the investor will see how the rental ratio of beds is going. In case, there is high rental ratio of beds, then the investor could continue the second stage investment to build the remaining 50% of bed required. The investment is departed to two stages could reduce the large amount of construction cost and the loan amount. The investor could check the outcome of first stage investment to determine whether to invest or not for second stage investment. Even if the market conditions go worse, the investor could terminate the project as wish.