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Continuity or Liquidation in Situations of Ambiguity: Fuzzy Binomial Model to Valuate Leveraged Firms

Author

Listed:
  • Gast¨®n S. Milanesi

    (Business Administration Department, Universidad Nacional del Sur., San Andr¨¦s 800, Campus Altos de Palihue, Depto Ciencias de la Administraci¨®n, UNS, Bah¨ªa Blanca (8000), Provincia de Buenos Aires, Argentina)

  • Emilio El Alabi

    (Business Administration Department, Universidad Nacional del Sur., San Andr¨¦s 800, Campus Altos de Palihue, Depto Ciencias de la Administraci¨®n, UNS, Bah¨ªa Blanca (8000), Provincia de Buenos Aires, Argentina)

  • Gabriela Pesce

    (Business Administration Department, Universidad Nacional del Sur., San Andr¨¦s 800, Campus Altos de Palihue, Depto Ciencias de la Administraci¨®n, UNS, Bah¨ªa Blanca (8000), Provincia de Buenos Aires, Argentina)

Abstract

This paper proposes a fuzzy binomial valuation model to estimate leveraged firm value while conditioning its continuity or liquidation in cash flow generation after taxes to attend debt payments. It includes two triangular fuzzy variables. Thus, we incorporate ambiguity in the firm valuation process characterized by uncertainty in projections of both growth and financial costs. Our proposed model is presented, developed, and exemplified through a case which results complement both the DCF (under the adjusted present value) and the traditional real option binomial method. This occurs because, in one hand, DCF method assumes decisions¡¯ irreversibility and operating firms¡¯ situation. On the other hand, traditional binomial model weakens previous restrictions but does not incorporate ambiguous variables in the analysis. Hence, fuzzy logic applied to option models allows us to complement probabilistic valuation approach working on a frame of possibilities.

Suggested Citation

  • Gast¨®n S. Milanesi & Emilio El Alabi & Gabriela Pesce, 2015. "Continuity or Liquidation in Situations of Ambiguity: Fuzzy Binomial Model to Valuate Leveraged Firms," Research in Applied Economics, Macrothink Institute, vol. 7(1), pages 26-47, March.
    • Handle: RePEc:mth:raee88:v:7:y:2015:i:1:p:26-47
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    References listed on IDEAS

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