[Decision Trees and Penalized Present Value (An alternative to valuation through Real Options)]

[Decision Trees and Penalized Present Value (An alternative to valuation through Real Options)]

Abstract:

Penalized Present Value (conceived as Net present value penalization with the risk involved) can be an interesting tool when assessing risky investment decisions. On the
other hand, Decision Trees appears as a technique used by practitioners for the last decades.
In this paper we combine both techniques in the analysis of a complex investment decision (more specifically, a real case study related to searching for new markets) and we reach satisfactory results. The proposed methodology can be seen as a complementary alternative to Real Options analysis.

Keywords: Penalized Present Value, Decision Trees, Real Options, Valuation.