This paper is to develop a modified Tobin's q evaluation method which successfully combines the evaluation criteria of the traditional Tobin's q and the real options. This study provides flexible thinking for decision making criteria. That is, it clearly provides decision‐makers with a reference in choosing enter or exit strategies, such as quantitative indicators references. The proposed model introduces two variables stochastic process in continuous time and explores the impact of the occurrence of unexpected events on the project value, so that, it can more authentically response to the project value. The studied issue deals with the firms that have not established energy‐saving equipment yet. It attempts to figure out the optimal timing to adopt an energy‐saving investment project when it is beneficial and the optimal timing to terminate it when the continuous operation of that business is unprofitable. The future discounted benefit–cost ratio, Q, follows the geometric Brownian motion with the Poisson jump process and the replacement of investment equipment. Except for the evaluation of energy‐saving equipment investment project, the proposed model can be applied to other related project evaluation issues, such as energy‐saving, CO2 emission reduction, or general investment projects.
