Duration and the Risk Adjustment of Discount Rates for Capital Budgeting

Capital budgeting applications frequently necessitate the use of a discounting methodology to allow for time value of money, supplemented by payback calculation to assess liquidity risk. This paper explains how both concerns can be addressed in a single process by using duration measure in making di...

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Bibliographic Details
Published in:The Engineering economist 1993, Vol.38 (4), p.299-307
Main Authors: BROWN, ROBERT J., KULKARNI, MUKUND S.
Format: Article
Language:English
Subjects:
Capital assets
Capital budgeting
Cash flow forecasting
Discount rates
Net present value
Studies
Value analysis
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Summary:Capital budgeting applications frequently necessitate the use of a discounting methodology to allow for time value of money, supplemented by payback calculation to assess liquidity risk. This paper explains how both concerns can be addressed in a single process by using duration measure in making discount rate adjustments which allow for the timing of the expected cash flows.
ISSN:0013-791X
1547-2701
DOI:10.1080/00137919308903105