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The Financial Decision Making for Tourism Hotels: Applying Real Options Approach

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  • Tung-Li Shih
  • Yu-Feng Chang
  • Tyrone T. Lin

Abstract

This paper is to evaluate the optimal threshold value for operating income uncertainty dealt with the investment strategy in tourism industry investor into Sun Moon Lake international tourist hotel market. To price the optimal project value and to provide strategy manager for another decision way of thinking is the focal point in this paper. The way of utilizing the real options approach to assess two periods’ optimal investment strategies for chartered company, to analysis the optimal investment timing for the first period and the second period and to build the optimal two periods’ investment evaluation model. The proposed model is to find the optimal thresholds for the first period and the second period under value-matching and smooth-pasting conditions and to discuss the impact of model parameters upon the investment thresholds for the first period and the second period by numerical analyses. The conclusions provide some valuable references for chartered company to make decisions with a new way of thinking for investment project.

Suggested Citation

  • Tung-Li Shih & Yu-Feng Chang & Tyrone T. Lin, 2020. "The Financial Decision Making for Tourism Hotels: Applying Real Options Approach," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(2), pages 1-32, February.
    • Handle: RePEc:ibn:ijefaa:v:12:y:2020:i:2:p:32
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    References listed on IDEAS

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    4. Glen C. Arnold & Panos D. Hatzopoulos, 2000. "The Theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(5&6), pages 603-626.
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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