Real Options Application Framework for Shipbuilding Enterprises

This paper presents a real options framework to help shipbuilding business evaluating investment project properly and making a correct investment decision. In China, shipbuilding enterprises´ fixed assets investment evaluation methods used are almost based on the traditional DCF methods, nonetheless the DCF methods are have many defects. The paper begins with analyzed and summarized the advantages of real options, and then analyzed the options characteristic embedded in shipbuilding enterprises fixed assets investment. Furthermore, as an example, the paper applies the framework to the case of JD shipyard expansion investment. Its result suggests that real options indeed can reflect the value of flexibility and the framework can help management making investment decision.