Estimating Present Value of Expected Expenditures in the Context of the Valuation of Negative Risk Cash Flows Using the RADR and Certainty Equivalent Methods

Odhad současné hodnoty očekávaných výdajů v kontextu ocenění záporných rizikových peněžních toků metodami RADR a jistotních ekvivalentů CE

Vojtěch Menzl

Oceňování, 2019, vol. 12, issue 2, 29-48

Abstract: The presented paper aims to point at the broader context of valuation using the methods of risk-adjusted discount rates (RADR) and certainty equivalents (CE), respectively, when dealing with negative risk cash flows. The article discusses different concepts of risk and uncertainty, presents an overview of the research (literature) on risk adjustment and discounting methods applicable on future uncertain cash flows published over the past 50+ years, and also addresses how the methods of certainty equivalents and risk-adjusted discount rates interlink and relate to the concept of utility function. The article concludes with a call for caution and critical view when the universally adopted RADR method is applied in valuation of negative risk cash flows (expenditures).

Keywords: RADR; certainty equivalent method; CAPM; beta coefficient; utility function; risk; risk-free discount rate; metoda jistotních ekvivalentů; koeficient beta; užitková funkce; riziko; bezriziková diskontní sazba (search for similar items in EconPapers)
JEL-codes: D81 G11 G30 O12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://ocenovani.vse.cz/doi/10.18267/j.ocenovani.230.html (text/html)
http://ocenovani.vse.cz/doi/10.18267/j.ocenovani.230.pdf (application/pdf)
free of charge

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:prg:jnloce:v:12:y:2019:i:2:id:2019_2_03:p:29-48

Ordering information: This journal article can be ordered from
Editorial office Ocenovani, Prague University of Economics and Business, W. Churchill Sq. 4, 130 67 Prague 3, Czech Republic
http://ocenovani.vse.cz

DOI: 10.18267/j.ocenovani.230

Access Statistics for this article

Oceňování is currently edited by Časopis Oceňování

More articles in Oceňování from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().