Optimizing investment decisions using DCF, decision tree analysis, and real options analysis : the case of hotel expansions

Rajajagadeesan Aroul, Ramya (Ecole hôtelière de Lausanne, HES-SO // University of Applied Sciences Western Switzerland)

Large scale infrastructure expansions in hotels are exposed to uncertainty. Since the costs involved in these expansion projects are high and often irreversible, hotels would benefit from analyses that incorporate uncertainty along with traditional valuation techniques like the discounted cash flow (DCF) method. Decision tree analysis (DTA) and real options analysis (ROA) have been in use for the past couple of decades to handle uncertainties and optimize investment decisions. DTA provides a distinct approach to strategic investments that quantitatively takes into account the uncertainties involved in the investments. Under uncertainty, the decision about whether to expand is analogous to the decision about whether to exercise an American call option. By using ROA to the hotel expansion scenario, managers can in-corporate and quantify, flexibility and timing in their analysis. The objective of this chapter is to detail the DCF, DTA and ROA methodologies and their applications specific to hotel expansion investments.


Keywords:
Faculty:
Economie et Services
School:
EHL
Subject(s):
Economie/gestion
Publisher:
Hershey, IGI Global
Date:
Hershey
IGI Global
2017
Pagination:
pp. 98-114
Published in:
Handbook of research on holistic optimization techniques in the hospitality, tourism, and travel industry
DOI:
ISBN:
9781522510543
External resources:
Appears in Collection:

Note: The status of this file is: restricted


 Record created 2017-10-26, last modified 2018-12-20

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)