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Use of Probabilistic Cash Flows in Analyzing Investments Under Conditions of Risk and Uncertainty

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  • Richardson, James W.
  • Mapp, Harry P.

Abstract

Managers of business firms, large or small, farm or nonfarm, must make investment decisions under conditions of risk and uncertainty. However, in evaluating investments, the assumption of perfect knowledge has often been used to simplify the analysis. For example, an estimate of average annual net returns is frequently discounted into perpetuity to evaluate a real estate investment alternative. Capital budgeting literature suggests a number of approaches to evaluating alternative investments. However, use of concepts such as the payback period, average rate of return, internal rate of return and net present value embodies the assumption of perfect knowledge.

Suggested Citation

  • Richardson, James W. & Mapp, Harry P., 1976. "Use of Probabilistic Cash Flows in Analyzing Investments Under Conditions of Risk and Uncertainty," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 8(2), pages 19-24, December.
    • Handle: RePEc:cup:jagaec:v:8:y:1976:i:02:p:19-24_01
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    References listed on IDEAS

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    1. Adler, Michael, 1970. "On Risk-Adjusted Capitalization Rates and Valuation By Individuals," Journal of Finance, American Finance Association, vol. 25(4), pages 819-835, September.
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    3. Cassidy, P.A. & Rodgers, J.L. & McCarthy, W.O., 1970. "A Simulation Approach to Risk Assessment in Investment Analysis," Review of Marketing and Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 38(01), pages 1-22, March.
    4. J. Hirshleifer, 1958. "On the Theory of Optimal Investment Decision," Journal of Political Economy, University of Chicago Press, vol. 66(4), pages 329-329.
    5. Blume, Marshall E, 1971. "On the Assessment of Risk," Journal of Finance, American Finance Association, vol. 26(1), pages 1-10, March.
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    4. Ojo, Kehinde Elizabeth & VanSickle, John J. & Thapa, Bhawna, 2022. "Nepal's Sacred Cattle: Profitability Analysis and Policy Implications," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 19(1), June.
    5. Ishag, Kheiry Hassan M. & Abdelaziz, Hag Hamad, 2014. "Water Policy Under Risk and Uncertainty A Dynamic Evaluation Model of Fodder Cultivation in Oman," Sustainable Agriculture Research, Canadian Center of Science and Education, vol. 4(01).
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    8. Gill, Robert Chope, II & Richardson, James W. & Outlaw, Joe L. & Anderson, David P., 2003. "An Analysis Of Ethanol Production In Texas Using Three Ethanol Facility Sizes And Their Relative Optimal Subsidy Levels," 2003 Annual Meeting, February 1-5, 2003, Mobile, Alabama 35003, Southern Agricultural Economics Association.
    9. De Leijster, V. & Verburg, R.W. & Santos, M.J. & Wassen, M.J. & Martínez-Mena, M. & de Vente, J. & Verweij, P.A., 2020. "Almond farm profitability under agroecological management in south-eastern Spain: Accounting for externalities and opportunity costs," Agricultural Systems, Elsevier, vol. 183(C).
    10. Benavidez, Justin R. & Thayer, Anastasia W. & Anderson, David P., 2019. "Poo Power: Revisiting Biogas Generation Potential on Dairy Farms in Texas," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 51(4), pages 682-700, November.
    11. Lalani, Baqir & Dorward, Peter & Holloway, Garth, 2017. "Farm-level Economic Analysis - Is Conservation Agriculture Helping the Poor?," Ecological Economics, Elsevier, vol. 141(C), pages 144-153.
    12. Sonka, Steven T. & Dixon, Bruce L., 1979. "Determinants Of Lender Response To Short-Term Credit Needs Of Small Commercial Farmers," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 11(01), pages 1-5, July.
    13. Richardson, James W. & Lemmer, Wessel J. & Outlaw, Joe L., 2007. "Bio-ethanol Production from Wheat in the Winter Rainfall Region of South Africa: A Quantitative Risk Analysis," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 10(2), pages 1-24.
    14. Lau, Michael H. & Richardson, James W. & Outlaw, Joe L. & Fuller, Stephen W. & Nixon, Clair J. & Herbst, Brian K., 2004. "Location Of A Mixalco Production Facility With Respect To Economic Viability," 2004 Annual meeting, August 1-4, Denver, CO 20025, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    15. Yeboah, Anthony K. & Naanwaab, Cephas B. & Yeboah, Osei-Agyeman & Owens, John Paul & Bynum, Jarvetta S., 2013. "Economic Feasibility of Sustainable High Oilseed-Based Biofuel Production: The Case for Biodiesel in North Carolina," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 16(01), pages 1-26, February.
    16. McCorkle, Dean A. & Dudensing, Rebekka M. & Hanselka, Dan & Hellman, Ed W., 2016. "Economics of Robotic Technology in Texas Wine Grape Production," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230005, Southern Agricultural Economics Association.
    17. Ojo, Kehinde Elizabeth & VanSickle, John J. & Thapa, Bhawna, 2022. "Nepal’s Sacred Cattle: Profitability Analysis and Policy Implications," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 19(01), June.
    18. Asci, Serhat & VanSickle, John J. & Cantliffe, Daniel J., 2014. "Risk in Investment Decision Making and Greenhouse Tomato Production Expansion in Florida," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 17(4), pages 1-26, November.
    19. Palma, Marco A. & Richardson, James W. & Roberson, Brad E. & Ribera, Luis A. & Outlaw, Joe L. & Munster, Clyde, 2011. "Economic Feasibility of a Mobile Fast Pyrolysis System for Sustainable Bio-crude Oil Production," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 14(3), pages 1-16, September.
    20. Ribera, Luis A. & Outlaw, Joe L. & Richardson, James W. & Silva, Jorge A. da & Bryant, Henry L., 2007. "Mitigating the Fuel and Feed Effects of Increased Ethanol Production Utilizing Sugarcane," Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 313700, Farm Foundation.
    21. Lalani, Baqir & Lanza, Gracia & Leiva, Benjamin & Mercado, Leida & Haggar, Jeremy, 2024. "Shade versus intensification: Trade-off or synergy for profitability in coffee agroforestry systems?," Agricultural Systems, Elsevier, vol. 214(C).
    22. Falconer, Lawrence L. & Richardson, James W., 2013. "Economic Analysis of Crop Insurance Alternatives Under Surface Water Curtailment Uncertainty," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142990, Southern Agricultural Economics Association.
    23. Asci, Serhat & Konduru, Srini & Williams, Lynn, 2020. "Potential of Solar Energy in Agricultural Production in Caribbean Countries," Farm and Business - The Journal of the Caribbean Agro-Economic Society, Caribbean Agro-Economic Society, vol. 12(01), December.

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