Use of Probabilistic Cash Flows in Analyzing Investments Under Conditions of Risk and Uncertainty
Year: 1976
Type: article
Abstract: Managers of business firms, large or small, farm or nonfarm, must make investment decisions under conditions of risk and uncertainty. However, in evaluating investments, the assumption of perfect knowledge has often been used to simplify the analysis. For example, an estimate of average annual net returns is frequently discounted into perpetuity to evaluate a real estate investment alternative. Capital budgeting literature suggests a number of approaches to evaluating alternative investments. However, use of concepts such as the payback period, average rate of return, internal rate of return and net present value embodies the assumption of perfect knowledge.
Authors: James W. Richardson, Harry P. Mapp
Institution: Oklahoma State University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2130423475