98 Copyright © 2017, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited. Chapter 4 DOI: 10.4018/978-1-5225-1054-3.ch004 ABSTRACT 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 beneft from analyses that incorporate uncertainty along with traditional valuation techniques like the discounted cash fow (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, fexibility and timing in their analysis. The objective of this chapter is to detail the DCF, DTA and ROA methodologies and their applications specifc to hotel expansion investments. INTRODUCTION The discounted cash flow (DCF) technique is the most widely used valuation technique in practice. In this technique, a project is valued by discounting its expected cash flows at its cost of capital. The cost of capital, usually the weighted average cost of capital (WACC) is used to estimate the worth of future cash flows today. This process of estimating how much these future cash flows are worth Optimizing Investment Decisions Using DCF, Decision Tree Analysis, and Real Options Analysis: The Case of Hotel Expansions Ramya Rajajagadeesan Aroul Ecole Hôtelière de Lausanne, HES-SO – University of Applied Sciences Western Switzerland, Switzerland