Project Valuation of a Distribution Centre of an Auxiliary Rail Freight Terminal: Using Real Options with Fuzzy Logic and Binomial Trees Cover Image

Project Valuation of a Distribution Centre of an Auxiliary Rail Freight Terminal: Using Real Options with Fuzzy Logic and Binomial Trees
Project Valuation of a Distribution Centre of an Auxiliary Rail Freight Terminal: Using Real Options with Fuzzy Logic and Binomial Trees

Author(s): Fernando Cruz-Aranda, Francisco Ortiz-Arango, Agustín I. Cabrera-Lianos
Subject(s): Business Economy / Management, Economic policy, Economic development
Published by: Reprograph
Keywords: project evaluation; real options; binomial trees; fuzzy logic;

Summary/Abstract: This paper presents the financial evaluation of the extension of an auxiliary rail freight terminal to integrate it to a logistics platform (LP). This investment phase is focused on building a distribution center (CEDI), as part of a comprehensive project of high commercial and strategic impact for Mexico. The project evaluation is done using binomial trees for the valuation of an American type real call option, incorporating the expected volatility over the expected cash flows, in order to determine the benefit of postponing the project three years. In addition, to complement this real option valuation, we incorporate the fuzzy logic theory in the process of assigning probabilities to the branches of tree. The value of the American type real call option to postpone the project three years is 30.37% of investment, while the value of real option, using fuzzy logic is 29.94% of investment, this is a better result.

  • Issue Year: XI/2016
  • Issue No: 43
  • Page Range: 894-897
  • Page Count: 4
  • Language: English