Tamsui, Taipei: Tamkang University, Department of Management Sciences and Decision Making
The purpose of the study is to propose a model that based on the real options analysis for dealing with the entry-exit strategies of cosmetic GMP certification. The optimal thresholds are obtained from the model with uncertain revenue of the firm. According to the optimal entry and exit thresholds, the cosmetic firms can determine to enter into or to withdraw from the GMP certification. The GMP certification is an investment for the firms. Traditionally, the investments are evaluated by capital budgeting methods such as net present value (NPV) method or internal rate of return (IRR) method. However, the traditional methods are based on some unrealistic assumptions. For example, the cash flows of the project are generated with a certain scenario and the project are now exercised without any deferring flexibility. As a result, the traditional capital budgeting methods can not reveal the whole value of the project. Therefore, in order to show the entire value of the project, this paper adopts the real options approach to evaluate the project of cosmetic GMP certification. In addition, we compare the differences between the risk-adjusted net present value method and real options approach in their evaluation results.
Proceedings of the 2011 International Conference in Management Sciences and Decision Making=2011年管理科學與經營決策國際學術研討會論文集, pp.71-80