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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 decisionsi¯ irreversibility and operating firmsi¯ 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.

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