In this paper, we model cash flow and consumption growth rates as a vectorautoregression (VAR), from which we measure the response of cash flow growth to consumption shocks. As the appropriate cash flow proxy is not unambiguous, nor likely to be measured without error, we consider three alternatives for portfolio cash flows: cash dividends, dividends plus repurchases and corporate earnings. We ...

We consider a principal-agent model, in which the agent needs to borrow from the principal to finance a project. Our model is based on DeMarzo and Fishman (2003), except that the agent’s cash flows are given by a Brownian motion with drift in continuous time. The difficulty in writing an appropriate financial contract in this setting lies in the fact that the agent can hide cash flows and not p...

I examine whether earnings that are smoother or more volatile than cash flows provide or garble information. Consistent with theories that predict more informed trading when public information is less informative, I find that bid-ask spreads and the probability of informed trading are higher both when earnings are smoother than cash flows and also when earnings are more volatile than cash flows...

The benefit/cost (B/C) ratio method is utilized in many government and public work projects to determine if the expected benefits provide an acceptable return on the estimated investment and costs. Many authors have studied probabilistic cash flows in recent years. They introduced some analytical methods which determine the probability distribution function of the net present value and internal...

Risk analysis involves the development of the probability distribution for the measure of effectiveness. The risk associated with an investment alternative is generally either given as the possibility of an unfavorable value of the measure of effectiveness or measured by the variance of the measure of effectiveness. In an uncertain economic decision environment, an expert’s knowledge about disc...

We consider the internal rate of return (IRR) decision rule in capital budgeting problems with fuzzy cash flows. The possibility distribution of the IRR at any r ≥ 0, is defined to be the degree of possibility that the (fuzzy) net present value of the project with discount factor r equals to zero. Generalizing our earlier results on fuzzy capital budegeting problems [5] we show that the possibi...

Traditional cash flow estimation techniques focus on generating net cash flow estimates period-by-period, which are then discounted by the firm's cost of capital. While conceptually strong, this aggregation approach can be insensitive to the fine-grained detail so important to managing project cash flows, in particular, that investment returns are always a combination of growth (renewal) and de...