This paper discusses the analysis of investment in projects where the hypothesis of increasing risk is not adequate. This is particularly the case of investment in research projects ivhere each completed stage decreases the risk of following stage failure. Projects of this kind are almost always rejected zuhere evaluated by the discount cash flow methods which use discount rates including risk premium. It is presented here a case study based on an actual experience conducted inside a private firm solved by the application of decision tree theory.
decision theory; analysis of investment; risk analysis