The Real Options Approach to Merger and Acquisition

• Main Authors: Yi-Chieh Chiang, 江宜潔
• Other Authors: Dr. Chiou Jong-Rong
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/58956504774985681978

碩士 === 淡江大學 === 財務金融學系碩士在職專班 === 94 === According to the gross margin is going down in industry, M&A activity start to popular in companies. In Taiwan, IT industry is especially had a hard time in industry survive. Traditional corporate investment decisions are base on the NPV method to evaluation projects. Due to static and exible characteristics, traditional investment valuation methods are inadequate to meet the requirement of decision making in M&A. It has been twenty years since Stewart Myers first suggested that the application of option pricing techniques to corporate investment projects could help to heal the rift between finance and strategic planning in the corporation. However, a 2002 survey of Fortune 1,000 CFO’s found that only 11% of the 205 CFO’s surveyed used real options analysis. The purpose of this study is to apply ROA methods in valuing investment opportunities of M&A that contain real options. Major findings are summarized as follows: The static NPV is negative NT50.6 millions and the project’s standard deviation is 19.8%, that means the project contains a lot of opportunity and real option approach could be a good method to add the project’s value. Under the condition of manager has the option to extend (scenario 1), the NPV increases 5.36%, while when manager both has the option to extend and abandon the NPV increases 19.17%. This shows consider the option of the project, the NPV is turn to positive and that means the manager should accept the M&A under applying real option approach. From sensitivity analysis results, the factors which affect the project’s rate of return from high to low is DT volume, discount rate, US dollar against new Taiwan dollar exchange rate, MB volume, DT ASP and MB ASP. Manager should pay more attention on the volatility of interest rate and exchange rate, this is because the IT industry pay to vendors and receive from customers all by US dollar. Manager should take hedge action in both interest rate and currency exchange rate to prevent the risk of reduce the rate of return of the project.