Abstract
Due to the fiscal factors and with the aim of attracting the private sector, the government has introduced Public-Private Partnership (PPP) into public infrastructures. Infrastructure projects are thus procured and public benefits achieved. This type of Public-Private Partnership and public infrastructure are most commonly seen in BOT. However, applying the Public-Private Partnership into zone expropriation is an innovative method, and it is the reason for the development of Southern Taiwan Science Park being a success. The subsequent development of Hsinchu Taiwan Science Park Phase III and the Taiwan Taoyuan International Airport Access MRT System A7 Station TOD, which was promoted in 2012, both belonged to this type of investment project. By combining the development method of BT and BOO, the initial investment from the public sector is high, and with a longer investment period. The future revenue will come in the form of the acquisition of the Pay-for-Land. The viability of the project may be improved if the host government offers concessional investors the options or rights to wait or expand or terminate the project in response to environmental changes. When facing investment projects with high levels of uncertainty, evaluations using conventional capital budgeting fails to take into consideration the flexibility of investment decisions, therefore, it often neglects the value of the option, which may result in feasible investment projects been left out. The present study applies the Binomial option pricing model. Investors who are entitled to options, which values affect the investment project, are analyzed. Sensitivity analysis on each variable are also performed. Using the Science Park III as an example; when using the cash flow analysis as the foundation for the financial evaluation, the net present value of the investment project turns out to be negative. When adding in the value of the option to wait, terminate or expand, the value of the “expand” option turns positive, reflecting the real value of the investment project.