Abstract:

If a process enterprise exposed to market risk can control a proportion of materials supply, it means it buy an option that the enterprise can choose supply channels from the it’s base and markets. This kind of option value to an alliance of wood process and plantation. The paper quantifies the strategic value by the option model. Sensitivity analysis shows the higher timber price, long-term capital interest fluctuation, and the more freedom of felling, the bigger expected value of timber forests. This apply of the option model offers a good foundation to understand the strategic value of materials base, and analyze the felling quota policy.

Key words: Alliance of wood process and plantation, Flexibility option, Strategic value, Materials base, Market risk