Abstract
Evaluations of investment proposals based on forecast cash flows are subject to uncertainties and the more remote in time a cash flow is expected to occur the greater the degree of uncertainty. A simple technique is proposed here which manipulates the discounting procedures so that late-occurring cash flows are penalized more severely in present value terms than they would be by customary discounting. The technique proposed transforms calendar time to risk-time by means of a risk-exponent but otherwise uses conventional profitability measures. Guidance in the choice of the appropriate values for the risk-exponent is given.
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© 1990 Springer Science+Business Media New York
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Resnick, W. (1990). The Incorporation of Uncertainty Into Investment Evaluations. In: Greer, W.R., Nussbaum, D.A. (eds) Cost Analysis and Estimating. Springer, New York, NY. https://doi.org/10.1007/978-1-4612-0995-9_8
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DOI: https://doi.org/10.1007/978-1-4612-0995-9_8
Publisher Name: Springer, New York, NY
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