Random Risk Factors Influencing Cash Flows: Modifying RADR

Oksana Hoshovska (), Zhanna Poplavska, Jana Kajanova and Olena Trevoho
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Oksana Hoshovska: Department of Theoretical and Applied Economics, Institute of Administration and Postgraduate Education, Lviv Polytechnic National University, 79013 Lviv, Ukraine
Zhanna Poplavska: Department of Theoretical and Applied Economics, Institute of Administration and Postgraduate Education, Lviv Polytechnic National University, 79013 Lviv, Ukraine
Jana Kajanova: Department of Economics and Finance, Faculty of Management, Comenius University in Bratislava, 81499 Bratislava, Slovakia
Olena Trevoho: Department of Theoretical and Applied Economics, Institute of Administration and Postgraduate Education, Lviv Polytechnic National University, 79013 Lviv, Ukraine

Mathematics, 2023, vol. 11, issue 2, 1-22

Abstract: In this article, we focus on considering different risk factors influencing the cash flows of a group of companies. A methodology is suggested for approximated consideration of both seasonal and random fluctuations in the environment, which have some impact on the overall group activity and may be considered via modification of the risk-adjusted discount rates. The main steps of the suggested methodology are described, and the elements of the risk-adjusted discount rate are presented. Although it is the general convention to use the market rate as the discount rate in most cases, under certain circumstances—i.e., stochastic shocks related to the level of interest rates, shifts, and turnabouts in the social environment, as well as the market transformations due to annual/seasonal epidemics, the use of a risk-adjusted discount rate becomes essential. The influence of the seasonal and random changes in the general environment on the companies’ activity through modification of the discount rate is illustrated both numerically and graphically in the article, providing analysis of the impact of exogenous parameters on companies’ output, profits, net present value, and discounted payback period for the initial investment.

Keywords: economic modelling; random factors; discounting; financial management; risk valuation (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
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