Variation of Project Life As a Means for Adjusting for Risk
作者:
JamesC. Van Home,
期刊:
The Engineering Economist
(Taylor Available online 1976)
卷期:
Volume 21,
issue 3
页码: 151-158
ISSN:0013-791X
年代: 1976
DOI:10.1080/00137917608902786
出版商: Taylor & Francis Group
数据来源: Taylor
摘要:
Among the more practical means of risk adjustment in capital budgeting is decreasing the life of a project the greater its perceived risk. In a recent survey of electric utility companies, Brigham and Pettway [1] found that 11 percent of the sample companies used variation of project life as the primary means for dealing with project risk, whereas 8.4 percent used it as the secondary method. Given the fact that only 58 percent of the companies surveyed had formal procedures for assessing risk, the pro portion of companies using this method vis-a-vis other methods is higher than the above percentages suggest. The purpose of this note is to analyze the variation of project life as a means for risk adjustment. The various biases inherent in its use are identified and the method compared with other crude methods of risk adjustment. We co elude that such biases severely limit, if not negate, the usefulness of the method, but that it is no more lacking than certain other methods.
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