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| Author: | Reimann, B. C. |
| Title: | Why bother with risk adjusted hurdle rates? |
| Journal: | Long Range Planning
1990 : JUN, VOL. 23:3, p. 57-65 |
| Index terms: | VALUE ANALYSIS CASH FLOW CORPORATE PLANNING FINANCIAL RISK FINANCIAL MODELS |
| Language: | eng |
| Abstract: | The value-based planning method has achieved wide acceptance among corporate planners in the last few years. Central to this method is the discounting of projected cash flows to establish the contribution to shareholder value of business units and strategies. Since different businesses may involve different degrees of risk, the proponents of this discounted cash flow technique recommend the use of risk-adjusted discount rates. Yet, many value-based planners prefer to use a single, corporate hurdle rate throughout the firm. Arguments are presented that it will be better if they do not adjust divisional hurdle rates for differences in risk. It is suggested that the cash flows themselves be adjusted for their relative uncertainty. |
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