Random Risk Factors Influencing Cash Flows: Modifying RADR

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 c...

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Bibliographic Details
Published in:Mathematics (Basel) 2023-01, Vol.11 (2), p.427
Main Authors: Hoshovska, Oksana, Poplavska, Zhanna, Kajanova, Jana, Trevoho, Olena
Format: Article
Language:English
Subjects:
Capital assets
Currency
Discount rates
discounting
Discounts
economic modelling
financial management
Fractals
Impact analysis
Interest rates
Normal distribution
Payback periods
Performance evaluation
random factors
Risk analysis
Risk assessment
Risk factors
risk valuation
Volatility
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Summary: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.
ISSN:2227-7390
2227-7390
DOI:10.3390/math11020427