The penalized updated value or VAP arises as an alternative to the classic risk assessment methods. It is therefore a method of dealing with risky investments. It is also known by its acronym in English PPV (Penalized Present Value).
This method for risk analysis was developed by the Spanish economist Fernando Gómez Bezares in the early 80s. In order to serve as an easy-to-use instrument for risk analysis. risk in a company and will assist in making certain investment decisions.
This method is based on the direct penalty of the NPV (Net Updated Value) based on the risks that are run. For which the variations and deviations of the Net Actualized Value are taken as reference
Formula for calculating the Penalized Updated Value (VAP)
The Penalized Updated Value calculates the Net Updated Value (NPV) medium. Later it takes this value and penalizes it with the standard deviations of the same Net Actualized Value. It is therefore based on carrying out a broader weighting of the unfavorable results.
When making a decision on an investment after applying the Penalized Updated Value (VAP) formula, those operations that result in a positive value in the VAP formula must be selected. The most optimal investments being those that have the result for the formula of the highest Penalized Actualized Value.
The formula for the linear calculation of the penalized updated value and the values for each field are as follows:
VAP = E (VAN) - t. σ (FROM)
- VAP is equal to Penalized Updated Value.
- E (NPV) is the average of the net present value.
- t is a specific value for the VAP equation.
- σ (NPV) is the standard deviation of the net present value.