The Incorporation of Uncertainty Into Investment Evaluations

William Resnick
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William Resnick: Israel Institute of Technology, Department of Chemical Engineering

A chapter in Cost Analysis and Estimating, 1990, pp 182-200 from Springer

Abstract: 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.

Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4612-0995-9_8

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DOI: 10.1007/978-1-4612-0995-9_8

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