Technology company evaluation - a quantitative framework under revenue uncertainty

摘要

The evaluation of the high tech Thin Film Transistor-Liquid Crystal Display (TFT-LCD) industry is not easy. Decisions about investing in the latest generation plant involve billions of dollars and a great deal of uncertainty. The traditional company evaluation method Net Present Value (NPV) rule is a ‘static discount of future cash flow’ concept that fails to capture the industry characteristic of a great deal of uncertain and enormous jump in revenue when price war arises, which are critical to the company evaluation in this industry. We incorporate the unique characteristics of the TFT-LCD industry into our model, and consider the uncertainties related to costs and revenues in terms of a mixed geometric Brownian and Jump motion process.