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Computing present values: Capital budgeting done correctly
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DOI：10.1016/j.frl.2014.05.001.png)
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Abstract
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This paper shows that the standard textbook formula for computing the present value of a future random cash flow - the discounted expected value - is formally incorrect and can generate significant errors when used to compute present values. The correct present value method is provided as well as a simple adjustment to the textbook formula which can be used to obtain an approximation to the correct value. (C) 2014 Elsevier Inc. All rights reserved.
Keywords:
Present value
No arbitrage
Capital budgeting
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