Authors
A.N. Blaset Castro, N.Yu. KULAKOV
Abstract
In investment management, there are two opposing approaches to the assessment of negative cash flows in the face of uncertainty. The first approach claims that the risk-adjusted discount rate (RADR) is independent of the sign of the cash flows and increases with increasing uncertainty. The second is that RADR increases for inflows and decreases for outflows as flows become more risky. The article proposes a solution to the problem based on the GNPV method, which uses the financial rate and reinvestment, depending on the sign of the present value of the project. It has been proven that these rates are adjusted for risk in different directions. A formula for adjusting the discount rate of negative cash outflows in the face of uncertainty has been obtained, expanding CAPM for assets with a negative position.
Keywords
risk-adjusted discount rate (RADR), risk premium, negative cash flow, generalized net present value (GNPV), capital asset pricing model (CAPM).
