Abstract
Real option analysis is a valuation way to capital budgeting decision. The real option analysis applies financial options theory to real investments, such as natural resource investments, real-estate, corporate finance, high-tech industry, manufacturing plants, product line extensions, and research and development. The aim of this analysis is offering an important way of thinking about valuation and strategic decision making, and the power of this approach is starting to change the economic “equation” of many industries. Using the financial options theory and dynamic programming, the manager can make decision to the project with managerial flexibility under uncertain circumstance. The aim of this paper is that firms use real options analysis to evaluate a new project or an undeveloped project. Before the firms make decisions, the firms can collect information about the new project. Therefore we use Kalman filter procedure to pre-dict and correct the value of the project. As a result, the manager can precisely know the value of the project to make a right decision.