A Study of Dynamic Investment Decision: The Case of TFT-LCD Industry
Date Issued
2006
Date
2006
Author(s)
Pan, John Chungteh
DOI
zh-TW
Abstract
The rush toward getting the latest generation of production facilities in TFT-LCD industry is like Arms races. The investment is huge and irreversible, and the cyclic market makes new investment highly volatile. For those who have been already in the competition arena, following suits in investment is the whole point. Drop behind means out of the game. Yet, how could anyone make up investment decision in project that seems hardly going to make any profits?
Conventional DCF and NPV methods can only provide linear evaluation along timeline. Real option analysis expands the look into the project valuation to include not only the time-value but also the value of strategic flexibility. However, in a highly volatile competition environment, we need a third degree of evaluation method to look into the significance among interactive strategies. Game theory provides the basis of such assessments.
A three-level evaluation framework introduced by Smit and Trigeorgis (2004) was employed to study an investment case of AUO in year 2004. The dilemma was making investment decision between Generation 5 or Generation 6 facilities. A quotient NPV term was adopted in this study for ranking project values of different investment strategies. Game analysis shows that equilibrium venue might not necessary converge towards the highest NPVq project plan. Nevertheless, deferral strategy creates the highest project value. Real option analysis reveals this strategic value that might otherwise being omitted.
Subjects
投資決策
實質選擇權
賽局理論
液晶顯示器
Strategic Investment Decision
Real Options
Game Theory
TFT-LCD
Type
other
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